TREASURIES-Yields firm in Asia after soaring on Fed minutes

TOKYO Fri Jan 4, 2013 1:13am EST

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TOKYO Jan 4 (Reuters) - Benchmark U.S. Treasuries yields probed fresh eight-month highs in Asia on Friday, after signs of doubt within the Federal Reserve over its bond-buying program pressured U.S. debt.

The minutes of the Fed's December policy meeting revealed that while the central bank appears set to continue buying bonds, some policymakers are reticent about further increasing its $2.9 trillion balance sheet.

"The market expected the Fed to buy about half of the new issuance of Treasuries this year, and the minutes contained words that made some investors completely rethink their supply/demand expectations," said Hiroki Shimazu, senior market economist at SMBC Nikko Securities.

The minutes came a day ahead of the monthly U.S. nonfarm payrolls report, which is expected to show the economy added 150,000 jobs in December, up from November's 146,000. The U.S. unemployment rate is expected to stay at 7.7 percent, according to a Reuters survey of economists.

The ADP Employment Report on Thursday showed private-sector employers added 215,000 jobs in December, beating the expectations of economists surveyed by Reuters, who had foreseen a gain of 133,000 jobs.

"Even if the payrolls data brings a downside surprise, there has been other evidence of improvement in the U.S. economy, so yields are unlikely to drop sharply," Shimazu added.

Yields on 10-year Treasuries stood at 1.929 percent in Asian trade on Friday, their highest since May and above 1.904 percent in late U.S. trade on Thursday

Yields on 30-year Treasuries stood at 3.138 percent, up from 3.118 percent on Thursday.

Treasuries dropped earlier this week after the U.S. government reached an agreement to avert the "fiscal cliff" of tax hikes and spending cuts that threatened to tip the economy back into recession, though the deal covered only taxes and delayed decisions on expenditures until March 1.

"While the 'fiscal cliff' was averted, the debt limit problem remains unsolved," said Ayako Sera, market economist at Sumitomo Trust and Banking.

"This move is so rapid that a correction would not be unexpected, with people buying back debt," she added.

On the supply side, the Treasury said on Thursday it will offer $32 billion of three-year notes on Tuesday, $21 billion of reopened 10-year notes on Wednesday and $13 billion of reopened 30-year bonds on Thursday.

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