TREASURIES-Prices edge higher as Fed meeting awaited

Tue Jan 29, 2013 10:26am EST

Related Topics

* U.S. consumer confidence slips in January to 1-year low
    * Yields for 10-year notes back below 2 percent
    * Treasury to auction $35 billion of five-year notes

    By Luciana Lopez
    NEW YORK, Jan 29 (Reuters) - U.S. Treasury prices edged up
in choppy trading on Tuesday as benchmark yields proved unable
to hold above the key 2 percent level, with investors looking to
a debt auction later in the day and a two-day Federal Reserve
meeting ending on Wednesday.
    Prices turned around early losses to advance after data
showed consumers lost confidence in January about the economic
outlook and their financial prospects, according to a private
sector report released on Tuesday. 
    "This is a reflection of the increase of the payroll tax
with the tax holiday going away," said Craig Dismuke, chief
economic strategist with Vining Sparks in Memphis, Tennessee.
    "This is a big concern. This could cut 0.5 percentage point
off first-quarter GDP," he added.
    Prices see-sawed through much of the early session in New
York as yields slipped further from the 2 percent mark briefly
pierced in the previous session for the first time since April.
    Treasuries have seen lower yields in recent months as
economic uncertainty around the world, particularly in Europe,
led investors to safe-haven assets such as U.S. government debt.
A move to higher yields, including a move above 2 percent in
benchmark 10-year Treasuries, could signal that investors are
more willing to take on riskier assets such as stocks.
    "Monday saw yields reach levels not seen since last April
and while we've yet to see a decisive wave of buying, we're
cognizant the prior attempts to push yields into this zone have
proven buying opportunities," said Ian Lyngen, senior government
bond strategist at CRT Capital LLC in Stamford, Connecticut.
    While technical signals don't yet have the momentum for
yields to decisively pierce 2 percent, he said, events later in
the week, such as the Fed's policy meeting and key monthly jobs
data, could change the near-term outlook.
    Ten-year notes traded 2/32 higher to yield 1.958
percent. Thirty-year bonds traded up 5/32 to yield
3.137 percent. That bond also saw yields around nine-month highs
on Monday.
    The Treasury will sell $35 billion of 5-year notes on
Tuesday, with a $29 billion auction of 7-year notes on
Wednesday.
    "A good auction would signal that markets are not convinced
that economic data will continue to accelerate from here and
perhaps it's already in the price in the near-term," said George
Goncalves, head of U.S. rates strategy at Nomura in New York.
    The U.S. Federal Reserve also kicks off a two-day policy
meeting on Tuesday. Investors will scour the statement on
Wednesday for hints of uneasiness within the bank around its
asset-buying program.
    Hints along those lines in the minutes from the December
meeting, released Jan. 3, sparked a selloff in Treasuries that
shook them from their ranges of recent months, bumping up
yields.
    Any further suggestion that the bank could pare back or end
its latest round of quantitative easing before the close of 2013
could have a similar effect.
    Encouraging data have also underscored hopes that the
recovery in the world's biggest economy is gaining traction,
with data on U.S. home prices on Tuesday that latest example.
    U.S. single-family home prices rose in November, building on
a string of gains that points to a housing market that is on the
mend, data from a closely watched survey showed on Tuesday.
 
    But a stronger test comes on Friday, as investors look to
nonfarm payrolls data. The Fed wants to see unemployment closer
to 6.5 percent from its current 7.8 percent, with some analysts
saying policy is on hold until that happens.
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