TREASURIES-Prices sink further on Fed pullback fears
NEW YORK, June 24 (Reuters) - Prices for U.S. Treasuries resumed their slide on Monday, with benchmark yields at a nearly two-year high in reaction to the Federal Reserve's timetable to gradually exit its stimulative bond-buying program. Fed Chairman Ben Bernanke's timeline on Wednesday to scale back the $85 billion-a-month of bond purchases took yields on benchmark 10-year notes to their highest since August 2011. The yields continued to climbe on Monday. "The exit door is not that big and everyone's going at the same time," said Justin Lederer, strategist at Cantor Fitzgerald in New York. "This is not just about a Treasury backup, this is a global, everyone-getting-out-of-everything." The potential Fed pullback has hit a range of assets around the world, including stocks and bonds in emerging markets and the U.S. stock market. U.S. 10 year-notes fell 22/32 in price on Monday to yield 2.623 percent from 2.542 percent late on Friday. The yield on Monday hit its highest since Aug. 2, 2011, which was followed several days later by rating agency Standard & Poor's cut of the U.S. sovereign rating from its prized AAA. The 30-year Treasury bond slumped 11/32 to yield 3.616 percent compared with 3.595 percent on Friday. Treasury Inflation-Protected Securities, or TIPS, were also hard-hit on Monday. Yields on five-year TIPS turned flat on Monday and briefly traded above zero for the first time since February 2011, according to data by TradeWeb.
TIPS have spiraled in recent sessions, hit not only by the expectations of the Fed pullback but also by a subdued inflation outlook. Bond mutual funds and bond exchange-traded funds have lost a combined $47.2 billion in June, the biggest monthly loss on record and exceeding outflows in October 2008, the climax of the global banking crisis, according to research firm TrimTabs Investment Research. In a Reuters poll after last week's Fed meeting, primary dealers largely saw the Fed slowing its asset purchases in September or December, with a smattering of other answers through the first quarter of 2014. The sinking Treasury prices could also be worrisome for the $99 billion slated for this week. The Treasury will sell $35 billion of 2-year notes on Tuesday, $35 billion of 5-year notes on Wednesday and $29 billion in 7-year notes on Thursday. Analysts said the selloff will cool at some point, but until then, sitting on the sidelines in cash could be one approach. "I like to think of this in terms of being a brushfire," William O'Donnell, head Treasury strategist at RBS Securities in Stamford, Connecticut. "There still appears to be tinder out there to burn, in other words, sellers that can't get out or need to get out," he said. "It's anyone's guess where this stops."