TREASURIES-Bonds steady as debt ceiling debate comes into focus
* Prices steady as debt ceiling debate comes into focus * Fed will buy $4.75-5.75 bln in notes due 2017-2018 * Risk-taking in Europe, stocks gains dampen Treasuries demand By Karen Brettell NEW YORK, Jan 11 (Reuters) - U.S. Treasuries held steady on Friday, after digesting $66 billion in new supply this week, as investors began to turn their attention to impending battles over the U.S. debt ceiling, which may hold bond yields down even as economic data improves. Treasury debt yields have been largely range bound this week, after a dramatic jump in the first three days of the year as investors bet on the prospects of an improving economy and after minutes from the Federal Reserve's December meeting raised the possibility that the central bank may end bond purchases before year-end. Concern over new battles in Washington over how to cut federal spending, reduce the deficit and raise the debt ceiling is likely to add a safety bid that will hold bond yields down even as some investors see the overall direction for yields as still pushing higher. "Overall it does feel like rates would like to go higher," said James Newman, head of Treasuries and agency trading at Keefe, Bruyette and Woods in New York. But "the debt ceiling got in everyone's head, how that will play out, so that is why we are grinding lower in yields." Benchmark 10-year notes were last down 2/32 in price to yield 1.91 percent, down from a high of 1.98 percent last Friday. The yields have increased from around 1.70 percent at year-end. Investors will now be closely watching a speech that Fed Chairman Ben Bernanke is due to give on Monday at the University of Michigan for any further indications of how long the Fed's latest bond purchase program will last. "He's the one pulling the strings and he's the one that wants the QE, so we'll see if he counterbalances some of the hawkish comments," said Newman. The Fed will buy between $4.75 billion and $5.75 billion in notes due from 2017 and 2018 on Friday as part of its latest quantitative easing program, and it has scheduled Treasuries purchases for every day of next week. Treasuries also firmed earlier on Friday after an acceleration in China's consumer inflation rate narrowed the scope for further monetary easing, causing selling pressure in stock markets and supporting safe-haven instruments such as U.S. debt. "We had ... disappointing inflation data out of China and the European equity market has run out of steam this morning - maybe a bit of profit taking - consequently Treasuries have recouped some of their losses." said RIA Capital Markets bond strategist Nick Stamenkovic.