U.S. Treasury debt prices were little changed to slightly higher on Monday in thin trading, after a rally the previous session following a soft U.S. non-farm payrolls report, with markets looking to this week's heavy supply on both the short and long-end. Markets are also awaiting the first testimony of Federal Reserve Chair Janet Yellen, who testifies in Congress on Tuesday and Thursday after a second month of weaker-than-expected U.S. jobs data. "
A lot of the action is looking forward to supply over the next three days," said Guy LeBas, chief fixed income strategist, at Janney Montgomery Scott in Philadelphia.
"We're in a little bit of a downtrend ahead of long duration supply and questions and discussions about the Yellen testimony." There was nothing on the U.S. data calendar on Monday except for the large T-bill auctions, including $84 billion in three- and six-month bills and $50 billion of l72-day cash management bills.
The Treasury, meanwhile, will sell $70 billion in new coupon-bearing debt this week, including $30 billion in three-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds. The Fed, meanwhile, will purchase between $2.25 billion and $2.75 billion in notes due 2021 to 2023 on Monday.
It bought $659 million in notes due 2024 to 2031 on Friday as part of its ongoing purchases.
Benchmark 10-year Treasurys rose 2/32 in price to yield 2.68 percent, down from 2.69 percent last Friday.
Thirty-year bonds gained 9/32 in price to yield 3.66 percent, down from 3.68 percent the previous session.
LeBas expects Yellen to stick to the script—giving a balanced assessment of the U.S. economy and therefore keeping the Fed's reduction of the its bond purchases on track.
"There were hopes built up on Friday that the Fed will come to the rescue given the state of the recent weak economic data, but the market will more likely be disappointed."
Five-year notes were flat at 1.47 percent, while seven-year notes stood at 2.13 percent. As for the Treasury auctions this week, Action Economics believes the three-year note should benefit from the Fed's forward guidance, which reiterated in the Jan. 29 policy statement that rates will remain low for some time.
"We don't think the proximity of the unemployment rate to the 6.5 percent rule threshold will limit buyers much as the other part of the rate strategy, inflation, is still far off its 2 percent target."