U.S. Treasuries have been on a slow grind lower for most of the morning, but the selling has really started to accelerate on heavy volume in the last few minutes.
Right now, 10-year Treasury futrues are down 0.3%. The yield on the 10-year note is at 2.89%, 5 basis points higher from yesterday’s close.
Republicans have just released their demands in the ongoing fight over raising the debt ceiling. House Majority Leader Eric Cantor says the House will consider the debt-limit bill next week, which will include a delay in funding Obamacare. Markets could be getting spooked over the resulting political tensions likely to arise in Washington, but it’s unclear whether that is actually driving the move.
All of this comes before the Federal Reserve’s big FOMC announcement at 2 PM ET. The Wall Street consensus is that the Fed will announce the first reduction in the pace of monthly bond purchases it makes under the quantitative easing program it introduced in September 2012.
The Fed is expected to taper monthly purchases to $US75 billion from the current rate of $US85 billion.
“Apparently some talk of a $US20 billion taper — just wishful thinking I bet,” says Tom Di Galoma, managing director at ED & F Man Capital. “My guess is that there is some last minute hedging and rate-locking in front of the FOMC decision.”
The chart below shows the sharp downward move in Treasury futures.