TREASURIES-Prices gain as higher yields lure buyers

Tue Jan 8, 2013 11:32am EST

Related Topics

* After selloff, higher yields attract buying
    * Treasury to auction $32 bln in 3-yr notes
    * Fed buys $3.71 bln in notes due 2018-2019

    By Karen Brettell
    NEW YORK, Jan 8 (Reuters) - U.S. Treasuries prices gained on
Tuesday as higher yields proved attractive and investors
prepared for the first sale of coupon-bearing Treasury debt for
the year.
    Treasuries have sold off dramatically over the past week
after lawmakers made concessions in order to avoid the "fiscal
cliff" of tax hikes and spending cuts, reducing the safety bid
for U.S. bonds.
    Market participants have also been debating whether the Fed
is likely to end its bond purchase program before year end,
after minutes from the Fed's December policy meeting released
last week showed discord among Fed voting members on continuing
the buybacks.
    The higher yields are likely to help demand for $66 billion
in new debt sales this week.
    "The recent back up creates a buying opportunity," said Sean
Simko, portfolio manager at SEI Investments in Oaks,
Pennsylvania.
    The Treasury will sell $32 billion in three-year notes on
Tuesday, $21 billion in 10-year notes on Wednesday and $13
billion in 30-year bonds on Thursday.
    Benchmark 10-year Treasures were last up 6/32 in
price to yield 1.88 percent, down from 1.90 percent late on
Monday, but up from around 1.70 percent at year-end.
    Thirty-year bonds gained 16/32 in price to yield
3.07 percent, down from 3.10 percent on Monday, and up from 2.87
percent at year-end.
    Treasuries also earlier got a safety bid on market talk that
France's sovereign debt rating was about to be downgraded. A
senior French official told Reuters the rumor was "erroneous."
    "The initial jump was on the rumor of the French downgrade,
but now there is decent buying going on," said Charles Comiskey,
head of Treasuries trading at Bank of Nova Scotia in New York.
    "Maybe there are some shorts in the market that will be
forced out, I think the three-year sale will go fairly well," he
added.
    In the "when-issued" market, traders expected the upcoming
three-year notes to sell at yields of 0.392
percent, only marginally over where the notes were trading in
the secondary market at 0.387 percent. 
    With no large economic indicators on the horizon, Treasuries
are expected to stay largely rangebound, albeit in a higher
yield range after the past week's push upwards.
    The next focus for the market is likely to be a new round of
wrangling in Washington where lawmakers face tough battles on
how to cut spending and reduce the deficit, as the country also
pushes up against its debt ceiling.
    "People are focusing back on the bigger picture, we still
have the debt ceiling in front of us, we still have growth but
albeit at a slower pace than everybody would like," said Simko.
    The Fed bought $3.71 billion in notes due 2018 and 2019 on
Tuesday as part of its latest quantitative easing program, meant
to stimulate hiring by reducing long-term borrowing rates.
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