By Saumya Vaishampayan, MarketWatch
NEW YORK (MarketWatch) -- Treasurys fell Tuesday, pushing yields
on the 10-year note to their highest since April 12, after data
showed that home-builder sentiment was weaker than forecast and
ahead of the Federal Open Market Committee's minutes release
Wednesday.
Yields on the benchmark 10-year U.S. Treasury note (10_YEAR)
rose 2 basis points to 2.03%. Yields move inversely to prices, and
one basis point is one one-hundredth of a percentage point.
"The big likely driver, if there is one, is probably going to be
the FOMC minutes coming out tomorrow," said Andrew Wilkinson, chief
economic strategist at Miller Tabak & Co.
Minutes from the January meeting are expected to shed light on
when and how the Fed may halt the bond-buying program. The FOMC
minutes released in January showed that "several" Federal Reserve
officials thought the bank could slow or stop the program before
December 2013.
For yields on the 10-year note to rise above the 2% level in the
longer term, the market needs to see further evidence that the
Federal Reserve is heading toward an exit strategy, Wilkinson
said.
"Until that point, there's probably a lid on yields on 2%
without further evidence that the economy is strengthening," said
Wilkinson.
Yields on the 30-year bond (30_YEAR) rose 3 basis points to
3.21% and yields on the 5-year note (5_YEAR) rose 2 basis points to
0.89%.
Large speculators "aggressively" bought 2-year notes, according
to a weekly hedge-fund note released Tuesday by Bank of America
Merrill Lynch.
Large speculators also recently moved out a crowded long, or
extremely bullish, position in 10-year Treasury notes, said Stephen
Suttmeier, U.S. technical analyst at Bank of America Merrill
Lynch.
If 10-year yields follow the seasonal bias from January to April
and push "decisively" above 2%, yields could go as high as 2.3% to
2.5% in April or May, he said.
The National Association of Home Builders/Wells Fargo housing
market index, a gauge of U.S. residential builders' confidence,
declined in February for the first time since April, data showed
Tuesday. The index fell to 46 from 47 in January, compared with
analyst expectations of 48.
"Overall, a soft report, but given the recent string of gains,
it is difficult to argue that the reading is a disappointment,
rather more of a pause," Ian Lyngen, senior government-bond
strategist at CRT Capital Group, wrote in a note.
Germany's ZEW indicator of economic sentiment rose to 48.2 from
its previous reading of 31.5 in January, surpassing analyst
expectations of 35.0. The index measures future expectations and
the upbeat data pushed European stocks up.
The German data boosted optimism that the euro zone's economic
recovery is likely to be stronger in six months, according
Wilkinson. "We're seeing slightly lower German bund yields, calm in
the peripheral markets. In that environment, there's nothing
worrying Treasury investors either."
Yields on the 10-year German bund were unchanged at 1.62%, and
yields on the German 5-year fell 1 basis point to 0.63%.
U.S. stocks continued their upward climb as investor sentiment
was buoyed by talk about a merger between Office Depot Inc. (ODP)
and OfficeMax Inc. (OMX). The Standard & Poor's 500 Index hit a
five-year high. .
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