Debt prices fall in push for auction concessions

NEW YORK (Reuters) - Treasury prices fell on Tuesday as investors pushed for concessions in new debt auctions this week, even as global stocks sagged and Greek bondholders clashed with euro zone officials over the terms of a voluntary debt swap.

The Treasury auctioned $35 billion of two-year Treasury notes, the first of three auctions this week in which the Treasury Department will issue $99 billion in new debt. Traders often push to reduce debt prices heading into Treasury auctions.

Investors were also cautious as the Federal Reserve entered a two-day policy meeting, with the Fed due to issue its policy statement at the meeting's close on Wednesday.

Tuesday's U.S. two-year note auction was met with about average demand, with the high yield of 0.25 percent near expectations.

"Treasuries were trading lower leading into the auction, with the two-year sector building in a modest outright concession, although it was the outperformer on the curve. Since the results, Treasuries have done very little," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.

Benchmark 10-year Treasury notes were trading 4/32 lower in price to yield 2.07 percent, up from 2.06 percent late Monday, while 30-year bonds were trading 19/32 lower to yield 3.16 percent from 3.14 percent.

Wednesday's auction of five-year notes may not go as well, said Raymond Remy, a Treasury trader at Daiwa Securities in New York.

Wednesday's sale, Remy said, might be hobbled by anticipation of the policy statement the Federal Reserve is scheduled to release an hour later.

Strategists said the market was "on hold" until the results of the Fed's policy meeting are released on Wednesday afternoon.

"I guess people have realized there's no sense in getting ahead of themselves before the Fed," said Gennadiy Goldberg, interest rate strategist at 4Cast, Inc., referring to Monday's selling.

The Federal Open Market Committee began its two-day meeting on Tuesday. The policy statement and news conference by Fed Chairman Ben Bernanke that are to follow will mark the start of a new practice of announcing policymakers' interest rate projections.

Many market participants also see a chance that the Fed will announce a specific inflation target. But no one can guess exactly how the Fed will communicate these new pieces of information.

Citigroup, in a note to clients on Tuesday, said there was even a chance the Fed could hint at more quantitative easing in its statement on Wednesday.

"A lot of people are just waiting to see what exactly the Fed says and what comes out, just because there are so many possibilities that they can do," Goldberg said.

The largest price declines came in the long end of the Treasury yield curve. Joseph Leary, a trader at Citigroup in New York, said his desk had seen selling by commercial banks recently, as well as by central banks in Europe. He said the sales did not appear to be driven by any market-moving headlines.

Greece, meanwhile, on Tuesday was clinging to hope of a last-minute bond swap deal to avoid a messy default after euro zone officials sent talks back to square one by rejecting a final offer from the country's private bondholders.

Volume was thin, as celebrations of the Lunar New Year holiday affected markets in China, Hong Kong, Singapore and South Korea this week.

(Additional reporting by Emily Flitter; Editing by Andrew Hay)