TREASURIES-Prices steady to lower ahead of 10-year note auction
* Yields back off eight-month highs reached last week * Treasury to sell $21 billion of 10-year notes * 30-year bond yields seen heading back toward 3 percent By Chris Reese NEW YORK, Jan 9 (Reuters) - U.S. Treasury debt was trading steady to slightly lower in price on Wednesday ahead of the sale of $21 billion of 10-year notes and as strength in stocks undermined the safe-haven appeal of U.S. government debt. Yields have generally been easing since hitting an eight-month high on Friday after minutes from the Federal Reserve's December policy meeting sparked some worries the central bank could pare back its asset purchases sooner than some analysts were expecting if the economy improves enough. The Treasury will sell $21 billion of 10-year notes on Wednesday and $13 billion of 30-year bonds on Thursday. The sale of $32 billion of three-year notes on Tuesday drew strong non-dealer bidding. The high yield was 0.385 percent, in line with expectations. Ahead of Wednesday's sale, benchmark 10-year Treasury notes were trading 2/32 lower in price, their yield little changed from late Tuesday at 1.87 percent. Yields on Friday touched 1.98 percent, the highest since late April. Strong demand in Wednesday's auction would likely push yields lower to "bring yield support at 1.83 under pressure, with further downside in yields exposing 1.77 thereafter," said Michael Cloherty, head of U.S. rates strategy at RBC Capital Markets in New York. "Conversely, a sloppy auction result would likely prompt a break back above 1.89. We note however, that buying interest surfaced in earnest in the recent sell-off toward 1.96, and we anticipate that near-term re-tests of this level will draw a similar reaction," Cloherty said. Yield resistance at 2.04 percent "must be taken out to establish a more sustained bearish phase," he said. In the when-issued market, considered a proxy for where the yield will fix at auction, 10-year notes were trading with a yield near 1.87 percent. Thirty-year Treasury bonds were trading 4/32 lower in price, their yield little changed from late Tuesday at 3.07 percent. Thirty-year bond yields on Friday rose to 3.18 percent, marking the highest since late April, and some analysts were calling for a further pullback in the yield. "Three days of low volatility and a continued grind lower in yield, through the 3.08 percent breakdown area from Thursday, appears to be setting up for a post-auction shift to a lower yield range under 3 percent in bonds," said Richard Gilhooly, interest rates strategist at TD Securities in New York.
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