TREASURIES-U.S. bonds edge higher on Fed buybacks, Bernanke eyed

Mon Jan 14, 2013 5:45am EST

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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."
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