TREASURIES-Yields near 10-month high before new note supply

Wed Feb 13, 2013 11:43am EST

Related Topics

* Yields rise before $24 bln 10-yr note sale
    * 10-year notes test technical support levels
    * Treasuries temporarily pare price losses on retail sales
data

    By Karen Brettell
    NEW YORK, Feb 13 (Reuters) - U.S. Treasury debt yields rose
to near a 10-month high on Wednesday, with benchmark notes
testing technical support levels that, if broken, could spark a
larger selloff as banks and investors prepared to absorb new
supply of 10-year notes.
    The Treasury will sell $24 billion in 10-year notes
Wednesday in the second round of $72 billion in new coupon
supply this week. It will sell $16 billion in 30-year bonds
Thursday, and sold $32 billion of three-year notes on Tuesday.
    Preparation for Wednesday's auction helped send 10-year note
yields as high as to 2.03 percent on Wednesday, at
the upper end of their recent trading range. Benchmark yields
reached to 2.06 percent early last week, marking the highest
since mid-April.
    "We are at pretty critical juncture, I think it's going to
be important for the market to hold these levels on a short-term
basis," said Greg Faranello, a Treasuries trader at Societe
Generale in New York.
    If the 10-year notes yields hold a break above the 2.03
percent to 2.06 percent level, then technical analysis suggests 
the debt's yields may next increase to the 2.20 percent area.
    Traders expect the new debt to price at around a yield of
2.04 percent, according to trading in the
"when-issued" market.
    Benchmark 10-year notes were last down 9/32 in price to
yield 2.02 percent, up from 1.98 percent late on Tuesday.
    The debt briefly pared price losses after data earlier on
Wednesday showed little growth in consumer spending in January.
    U.S. retail sales barely rose in the month as tax increases
and higher gasoline prices restrained spending. 
    "The report shows that the economy continues to grow at a
modest pace, but the recovery is far from robust," said Eric
Stein, a portfolio manager at Eaton Vance in Boston.
    Investors are now focused on a package of automatic spending
cuts due to kick in on March 1, unless lawmakers agree on
alternative budget measures or delay negotiations to a later
date.
    The White House has said that cuts will harm economic
growth, though many lawmakers say reduced spending is necessary
to stabilize the country's rising debt load.
    Some analysts expect Treasury yields to fall in the weeks
heading into the debate deadline as investors adjust for the
likely impact of the spending cuts on the economy.
    The Federal Reserve bought $1.45 billion in bonds due from
2036 to 2042 on Wednesday as part of its ongoing bond purchase
program.
    It will also purchase between $4.75 billion and $5.75
billion in debt due from 2017 to 2018 on Thursday.
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