Government debt prices declined Wednesday following the Treasury's announcement of a record quarterly refunding and ahead of the Federal Reserve's latest statement on monetary policy.
--The government plans to auction a record $81 billion of debt next week to refund $38.5 billion of securities that are maturing and to raise another $42.5 billion.
--"Investors are showing a little hesitation because of the refinancing announcement today," said Peter Cardillo, a chief market strategist at Avalon Partners. An announcement about more supply typically reduces debt prices.
--The refunding calls for auctions of $40 billion of 3-year notes, $25 billion of 10-year notes, and $16 billion of 30-year long bonds to take place next week.
--The Treasury said it expects to reach its debt ceiling at the end of the year. If that happens, Treasury would not be able to issue more debt, forcing Congress to raise the debt ceiling.
That would be far from unusual. Lawmakers have raised the ceiling more than 90 times since 1940.
Fed watch. Investors also anxiously await the Fed's statement due at 2:15 pm ET Wednesday. It's widely expected that the central bank will continue hold interest rates at historic lows near 0%. Market participants will be closely looking for clues in the Fed's statement as to when it might remove stimulus funds it has pumped into the economy.
"A modest change in the language might be forthcoming, so that's weighing on the market right now," Cardillo said. "The anticipation is causing a bit of a sell-off."
If the Fed's statement hints that the economic recovery is sustainable, bond prices will be further pressured as investors pour money into riskier assets that offer a higher return, such as equities.
"As we see the economy gain momentum, the risk lies for higher yields. It's just a matter of time," said Cardillo.
Debt prices. The benchmark 10-year note was down 13/32 to 100-29/32 and its yield rose to 3.63% from 3.47% late Monday. Bond prices and yields move in opposite directions.
- The 30-year bond lost 22/32 to 102-4/32. Its yield was 4.34%.
- The 2-year note fell 2/32 to 100-3/32, with a yield of 0.96%.
- The yield on the 3-month bill was 0.05%
Watch for pressure on mortgage rates after the FED FOMC meetings at 2:15pm EST.