TREASURIES-Prices slip on Fed's planned stimulus pullback

Tue Jun 25, 2013 9:21am EDT

Related Topics

* Fed speakers look to soothe jittery markets
    * Durable goods orders for May better than expected
    * Personal consumption expenditures data on Thursday to be
scrutinized

    By Luciana Lopez
    NEW YORK, June 25 (Reuters) - Prices for U.S. Treasuries
edged down slightly in volatile trading on Tuesday, extending a
slump that has taken yields to near two-year highs, as investors
weigh a possible Fed pullback on its massive bond-buying
program.
    Investors dumped assets around the world - including stocks
and government debt - after Federal Reserve Chairman Ben
Bernanke last week said the bank could slow its $85
billion-per-month in Treasuries and mortgage backed securities
purchases as the economy gains momentum.
    But Fed speakers late on Monday took pains to reassure
markets that policymakers were not looking to exit all their
easing measures anytime soon.
    Minneapolis Fed President Narayana Kocherlakota said
investors were wrong to view the central bank as having become
more keen to tighten policy than it was before last week's
policy meeting. 
    Richard Fisher, the hawkish head of the Dallas Fed, added
that the Fed's ultimate "exit strategy" is still a ways out in
the future.
    "Going forward I think they're going to be more careful how
they phrase things or release their statements," Dimitri Delis,
interest-rate strategist at BMO Capital Markets in Chicago.
    "The only big unknown here in my mind is if the economy
truly improves, you truly get the traction that you need here,
and the Fed can really get out of" quantitative easing, he said.
    But he cautioned that, with inflation readings low and the
housing and equity markets potentially fragile in the face of a
Fed exit, policymakers could be cautious about stepping on the
brakes.    
    Benchmark 10-year Treasuries fell 2/32 in price
to yield 2.552 percent, up from 2.544 percent late on Monday,
when the yield hit its highest in 22 months.
    The 30-year bond saw choppy trading, last down
8/32 to yield 3.571 percent compared with 3.557 percent late on
Monday.
    Data on Tuesday underscored an improvement in the economy.
Orders for long-lasting U.S. manufactured goods rose more than
expected in May and a gauge of planned business spending
increased for a third straight month. 
  
    The afternoon will see a test of market appetite for
Treasuries at their current levels, when the Treasury will sell
$35 billion in two-year notes.
    "The latest FOMC induced sell-off offers attractive yields
and the front-end of the curve remains an ideal place to fade
the supposedly economic-recovery led sell-off," Nomura rates
strategists wrote in a note to clients.    
    The Treasury will also sell $35 billion in five-year notes
on Wednesday and $29 billion in seven-year notes on Thursday.
    Other data later in the week will also prove key for
investors looking to gauge Fed exit options.    
    Personal consumption expenditures data on Thursday for May
will be closely scrutinized for signs of whether inflation is
stabilizing at lower levels, rising or if price pressures are
continuing to fall.
    The index fell to a record low of 1.05 percent over the year
in April, and a continued fall may make it less likely that the
Fed is able to pare back its record stimulus.
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