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U.S. government securities prices slid Tuesday as traders prepared themselves for Wednesday's Treasury refunding announcement and a statement from the Federal Reserve on monetary policy.
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Dealers must make room for new supply that will arrive next week, but the Treasury will announce the size and terms of those three refunding auctions Wednesday, after which the securities can be bought and sold on a "when-issued" basis.
"You're seeing some pre-FOMC positioning and pre-refunding announcement positioning," said John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, N.J.
The benchmark 10-year Treasury note was down 15/32 in price, its yield rising to 3.48 percent from 3.42 percent late Monday.
Thirty-year bonds, in the plus column earlier in the session, were down 1-6/32, their yields rising to 4.33 percent from 4.26 percent Monday.
The statement the Fed's Federal Open Market Committee (FOMC) will release at the end of its two-day policy meeting on Wednesday afternoon is of keen interest to the markets.
"Some movements in the capital markets today are people taking positions before the FOMC press release tomorrow afternoon," said William Sullivan, chief economist at JVB Financial Group in Boca Raton, Florida. "This is especially true in the bond market where there has been talk that the Fed could change the wording in the statement to lay the foundation for tighter monetary policy at some point in the future."
Sullivan said that despite some improved data on the housing and industrial sectors, the economic recovery process is "tenuous" and would be hurt by tighter monetary policy.
"If there's any hint from the Fed that they want to withdraw liquidity, it will be received very negatively by both the marketplace and the business community," he said.
John Spinello, chief fixed-income technical strategist at Jefferies & Co in New York, said the FOMC meeting was the "immediate focus leading to position-adjustment trading."
One point being discussed is whether more hawkish members of the Federal Open Market Committee, the Fed's policy arm, will manage to make the Fed statement slightly less dovish by removing the word "extended" from the Fed's current commitment to keep interest rates low for an extended period.
"If, in fact, (the market has a) knee-jerk reaction to an altering of the language, which we do not expect to be policy-consequential, we will look at that as an opportunity to become friendly to the front end and for the yield curve steepening bias to continue," Spinello said.
On the economic indicator front, U.S. factory orders rose in September, as forecast. The report had no discernibleimpact on Treasurys prices.
The most influential U.S. economic report this week is the October nonfarm payroll report due Friday.
The median of forecasts from economists polled by Reuters is for payrolls to have contracted by 175,000 in October after narrowing by 263,000 jobs in September.
In afternoon trade, two-year notes were down 1/32, yielding 0.937 percent. Five-year Treasury notes were down 6/32 in price, their yields rising to 2.38 percent from 2.33 percent late Monday.
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Data is a real-time snapshot *Data is delayed at least 15 minutes