TREASURIES-U.S. bonds edge higher on Fed buybacks, Bernanke eyed
LONDON, Jan 14 (Reuters) - U.S. Treasury prices rose in Europe on Monday in anticipation of Federal Reserve bond repurchases this week that are expected to target longer-dated paper. Sentiment will also be dictated by a speech later in the day by Fed Chairman Ben Bernanke, with markets focused on any further indications of how long the central bank's latest bond buying programme will last. Benchmark yields climbed to 8-month highs in the first week of 2013 after minutes to the Fed's December meeting cast doubt on the future of the asset purchase scheme, adding momentum to a sell-off triggered by a last-minute U.S. budget deal to avert recession-inducing tax hikes and spending cuts. Yields have since stabilised as investors weighed cautiously upbeat economic data against the prospect of another round of tough political negotiations in coming weeks to raise the debt ceiling and enable the government to keep borrowing. U.S. T-note futures were last up 9/64 at 132-3/64 though trade was subdued with Japanese markets shut for a holiday. The 10-year T-note was down 4/32 in price to yield 1.85 percent, 1 basis point lower from late U.S. trade on Friday. "We had a good recovery into Friday's close and this week ahead we have five Fed buybacks, one every day, and the majority are concentrated in the longer end of the curve which is probably dragging everything back up," a trader said. "We have taken out in price terms last week's highs and maybe a run (in 10-year yields) towards 1.80-1.78 percent is possible and that's probably caught a few people out," he added. Benchmark yields are down from a high of 1.98 percent last Friday, though they have increased from around 1.70 percent at the end of 2012. While looming talks on the debt ceiling were likely to keep yields from climbing back near 2 percent in coming weeks, some analysts still see them spiking to that level by mid-year once some sort of deal is reached, given the guarded optimism about the economic recovery. "We are expecting yields to climb up in the Treasury curve over the year. The performance so far this year is what we anticipated for the first four to five months of the year and so the market should take some kind of a break for now," said Pablo Zaragoza, chief rates strategist BBVA in Madrid. "For mid-year we're expecting 10-year yields at around 1.95 percent. Some volatility could take place but we think 2 percent could be a reference point for mid-year."