"There's always a concern about a deal not getting done. It's a cat-and-mouse game in Washington right now, but you hope things are moving along," said Sean Simko, head of fixed income management at SEI Investments Co in Oaks, Pennsylvania. Benchmark 10-year Treasury notes were trading 10/32 lower in price to yield 1.652 percent, the highest in about two weeks.
Thirty-year bonds were 26/32 lower in price to yield 2.838 percent, up from 2.80 percent on Monday. A new program could take effect once the current Operation Twist stimulus program finishes at month-end, Nomura analysts wrote. "We expect additional purchases of Treasuries to match the size and pace of notional purchases ($45 billion/month) of Operation Twist," they wrote. Half the respondents in a Reuters poll on Friday said they too expected $45 billion per month in buying through a new round of Treasury securities purchases.
Treasuries held early losses after a three-year note auction attracted lukewarm bidding, as a record low yield perhaps deterred some potential buyers. The US Treasury sold $32 billion of three-year notes at a high yield of 0.327 percent, with a below-average bid-to-cover ratio of 3.36.
"Obviously it was on the rich side, and I think that probably contributed to some of the fairly lacklustre bidding," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco. In addition, the Treasury will sell $21 billion in 10-year notes on Wednesday and $13 billion in 30-year bonds on Thursday. Traders typically push for lower Treasury prices heading into such auctions.