Treasury debt sales dominate light data week for bond traders

(Bloomberg) — Bond traders will focus on demand for fresh sales of Treasury notes and bonds this week, as the market continues to operate without official data amid a record US government shutdown.

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The test of market demand for new debt comes as longer-dated yields have bounced from recent lows for the year, with the 10-year trading lately in a narrow range between 4.05% to 4.16%.

Treasury will auction new three-, 10-, and 30-year debt and this week’s refunding will total $125 billion, the same amount going back to May last year.

Traders face little data this week that can materially shift prices. Last week, interest-rate swap contracts tied to the Federal Reserve meeting on December 9-10 have been leaning toward a third quarter-point reduction. The market expects rate cuts to around the 3% level over the next 12 months, with sentiment leaning toward weaker hiring trends.

“What’s priced into interest rates is roughly fair,” said Chit Purani, portfolio manager at Capital Group. “If risks are tilted to the downside given labor market uncertainties, then the risk reward symmetry for interest rates does look quite positive.”

Capital favors owning “intermediate and shorter maturity Treasuries (2-year to 5-year) that are more linked to the path for Fed funds,” he said.

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