TREASURIES-Prices slip with profit taking in thin volume

Wed Nov 21, 2012 3:51pm EST

Related Topics

* Yields climb from two-month lows touched last week
    * U.S. Treasury sells $13 bln in TIPS reopening
    * Investors prepare for $99 bln of notes sales next week

    By Chris Reese
    NEW YORK, Nov 21 (Reuters) - U.S. Treasuries prices slipped
for a third day on Wednesday in light trading volume as
investors took profits on a recent rally that pushed yields to
two-month lows, while the Federal Reserve sold short-term debt
and the Treasury auctioned securities.
    The safe-haven value of Treasuries has been undermined this
week by some expectations the government may be able reach an
agreement to head off the so called "fiscal cliff" of tax
increases and spending cuts set to kick in early next year.
Republicans and Democrats remain deeply divided however over
whether or not tax increases can be part of dealing with the
U.S. budget deficit.
    "During the shortened holiday week we have witnessed the
intermediate sector of the U.S. rates curve snapping back to the
upper-end of the range," said George Goncalves, head of U.S.
interest rates strategy at Nomura Securities International in
New York.
    "We are not convinced that anything new has changed in the
short-term on the fiscal front - next week there will be plenty
of headlines to keep the market on edge - nor is European news
that much more stable now than before. Price action feels like
profit taking and no news is a good news week," Goncalves said.
    U.S. benchmark 10-year Treasury notes traded
6/32 lower in price to yield 1.69 percent, up from 1.66 percent
late on Tuesday and off a two-month low of 1.57 percent touched
on Friday.
    The Fed on Wednesday sold $7.67 billion in debt due 2015 and
2016 on Wednesday as part of its Operation Twist program, under
which it is using short-term debt sales to fund purchases of
longer-dated bonds.
    The Treasury also sold $13 billion in a reopening of 10-year
Treasury inflation-protected securities. The notes sold at a
high yield of minus 0.72 percent. 
    "There is some supply to deal with and there's still a
little bit of a 'risk on' move in the markets, so Treasuries are
under a little pressure," said Rick Klingman, a Treasuries
trader at BNP Paribas in New York.
    Investors were also looking to cheapen debt prices heading
into the sale of $99 billion of notes next week. The Treasury
will sell $35 billion of two-year notes on Tuesday, $35 billion
of five-year notes on Wednesday and $29 billion of seven-year
notes on Thursday. 
    Treasury trading volume was light heading into Thursday's
Thanksgiving holiday. The Treasuries market will be closed on
Thursday and shut early at 2 p.m. EST (1900 GMT) on Friday.
    Treasuries gained in overnight trading after Greece's
international lenders failed to reach a deal enabling them to
release more aid to Athens. They later pared these gains on
hopes that a deal will emerge.
    Euro zone finance ministers, the International Monetary Fund
and the European Central Bank said they will meet again next
Monday to try to pencil a deal on how to get Greece's debt down
to a sustainable level. 
    Bonds were little moved on Wednesday by data showing the
number of Americans filing new claims for jobless benefits fell
last week but remained high, a sign that storm Sandy in the
northeastern United States on Oct. 29 is proving to be a
substantial disruption to the labor market. 
    "Initial claims were skewed by Sandy so it's very hard to
know what the underlying trend is there," said Guy LeBas, chief
fixed-income strategist at Janney Montgomery Scott in
Philadelphia.
    The safety appeal of Treasuries was also undermined on
Wednesday after Israel and the Islamist Hamas movement agreed to
an Egyptian-sponsored ceasefire to halt an eight-day conflict
around the Gaza Strip that many worried could escalate into
wider violence in the Middle East.
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