TREASURIES-Yields edge up before three-year note sale

Tue May 7, 2013 9:12am EDT

* Yields at 3-week highs before supply
    * Treasury to sell $32 bln in three-year notes
    * Four-week bill auction to see strong demand as supply
dwindles
    * Fed to buy $1.25 bln to $1.75 bln in bonds due 2036-2043

    By Karen Brettell
    NEW YORK, May 7 (Reuters) - U.S. Treasuries yields rose to
new three-week highs on Tuesday as traders prepared for the sale
of $32 billion in new three-year notes, the first of $72 billion
in new coupon-bearing bond sales this week.
    U.S. government bond yields have surged since Friday's
better than expected jobs report for April as traders had
positioned for a much gloomier number.
    At the same time, many see yields as unlikely to march
significantly higher from here unless there are new signs that
the economic recovery is not slowing as much as feared.
    "One decent number is not strong enough to completely change
the mood of market players," said Jason Rogan, managing director
of Treasuries trading at Guggenheim Partners in New York. "We're
getting close to a point where you might start to see some
buying."
    Benchmark 10-year notes yields rose to 1.78
percent on Tuesday, up from 1.76 percent on Monday and the
highest since April 12. 
    Rogan sees levels of 1.80 percent to 1.82 percent as likely
to attract new buying from fund managers or central banks.
    Thirty-year bonds yields inched up to touch the 
key 3 percent level, up from 2.98 percent on Monday and also the
highest since April 12.
    The higher yields may help demand for this week's new
supply, with the Treasury also due to sell $24 billion in
10-year notes on Wednesday and $16 billion in 30-year bonds on
Thursday.
    The Treasury will also auction $20 billion in four-week
Treasury bills on Tuesday, the lowest amount for that auction
since an auction held in 2001, which is likely to be snapped up
by investors hungry for the collateral.
    The Treasury has been slashing its supply of short-term debt
as it accumulates more cash from tax receipts, and as the
government prepares for a new round of wrangling over the U.S.
debt ceiling later this month.
    Returns on one-month bills have plunged on the
declining supply, with one-month bill yields dropping to only
half a basis point on Tuesday, down from 3 basis points last
week and from over 10 basis points in late February.
    The Federal Reserve will also buy between $1.25 billion and
$1.75 billion in bonds due from 2036 to 2043 on Tuesday as part
of its ongoing bond purchase program.
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