TREASURIES-Prices slip ahead of Fed decision

Wed Jan 30, 2013 11:04am EST

Related Topics

* Fed to end two-day meeting, focus on statement
    * U.S. GDP shows unexpected contraction in fourth quarter
    * Treasury to auction $29 billion of seven-year notes

    By Luciana Lopez
    NEW YORK, Jan 30 (Reuters) - Prices for U.S. Treasuries fell
ahead of the end of a two-day Federal Reserve meeting, with
investors also pushing for price concessions ahead of a debt
auction.
    While Treasuries briefly moved higher after data showed a
surprise contraction in the world's biggest economy in the
fourth quarter, analysts said the figures would do little to
budge the Fed from its easy policy stance. 
    "We have a slowing in government spending associated with
the fiscal situation as well as some drawdown in military
activity," said Terry Sheehan, economic analyst with Stone &
McCarthy Research Associates in Princeton, New Jersey.
    "This report doesn't have immediate implications for Fed
policy. They will be unhappy with it, but it's one quarter's
number," Sheehan said.
    Investors are now awaiting the Fed's statement at the
conclusion of the bank's two-day meeting later in the day. The
Fed is expected to keep monetary policy on a steady path, though
behind the scenes intensive debate continues over when it should
curtail its controversial bond-buying program. 
    "They may change a couple of characterizations of how
financial conditions are in Europe and things of that nature,
but we're really not looking for any significant changes at
all," said Rajiv Setia, head of U.S. rates research at Barclays.
    But he added that data might not be enough to support the
move higher in yields this month.
    "Things are getting better, but I just don't think they're
going to be good enough to sustain this increase in yields,"
Setia said.
    Still, any hints in the Fed statement that policymakers are
growing nervous about easing could prompt more selling, as
happened after the Fed's December meeting minutes were released
on Jan. 3.
    In addition, the Treasury will sell $29 billion of 7-year
notes on Wednesday, after having sold $70 billion in debt in two
auctions earlier this week.
    Ten-year notes traded 5/32 lower to yield 2.015
percent, from 1.9973 percent late on Tuesday.
    Thirty-year bonds traded 8/32 lower to yield
3.197 percent. 
    Yields on benchmark 10-year notes have been testing the 2
percent level since Monday, breaching that figure for the first
time since April. But yields didn't get traction above that
level until Wednesday, helped by a bump in risk appetite in
Asian trading overnight.
    Investors are also awaiting nonfarm payrolls data on Friday.
The Fed wants the unemployment rate to drop closer to 6.5
percent from the current 7.8 percent.
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