TREASURIES-Prices gain before seven-year note sale

Thu Jun 27, 2013 11:14am EDT

Related Topics

* Prices gain as Fed speakers, weak data help stabilize
markets
    * Treasury will sell $29 billion of seven-year notes
    * Fed buys $5.05 billion in notes due 2017, 2018

    By Karen Brettell
    NEW YORK, June 27 (Reuters) - U.S. Treasuries prices gained
on Thursday as bond markets showed signs of stabilizing after a
dramatic selloff and before the Treasury's auction of $29
billion of seven-year notes, the final sale of $99 billion in
new coupon-bearing supply this week.
    Treasuries have held a firmer tone this week after being
roiled last week when Fed Chairman Ben Bernanke said the U.S.
central bank is likely to pare back its bond purchase program
later this year if the economy continues to improve.
    Downward revisions to first quarter gross domestic product
data on Wednesday led some investors to speculate that a
pullback of stimulus may still be far away. Speeches from
Federal Reserve officials in recent days have also sought to
soothe the markets with statements that the removal of stimulus
is likely to be slow and depend on the strength or weakness of
data.
    "The Fed has made efforts to talk the market back from those
assumptions" that the Fed is likely to start paring its bond
purchases in September, said Ian Lyngen, senior government bond
strategist at CRT Capital Group in Stamford, Connecticut.
    Federal Reserve Bank of New York President William Dudley
said on Wednesday that the Fed's asset purchases would be more
aggressive than the timeline Bernanke outlined last week if U.S.
economic growth and the labor market turn out weaker than
expected. 
    Atlanta Fed President Dennis Lockhart is also due to speak
on the economic outlook at 12:30 p.m. (1630 GMT).
    The Fed bought $5.05 billion in notes due 2017 and 2018 on
Thursday as part of its ongoing purchase program.
    Benchmark 10-year note yields have backed away
from 22-month highs of 2.67 percent reached on Monday to trade
at 2.52 percent on Thursday. The notes' yields nonetheless
remain significantly higher than the 2.20 percent area they
traded at before Bernanke's comments, and from 1.60 percent at
the beginning of May.
    "We've found a new range. We think we'll stay in this range,
in the mid-2.40s to mid-2.60s, for the next week and then
payrolls will be a determining factor," said Ira Jersey, an
interest rate strategist at Credit Suisse in New York.
    The payrolls report due next Friday comes the day after the
U.S. Independence Day holiday, which may reduce volumes and make
trading on the number more volatile.
    The stronger market tone, meanwhile, may help the Treasury's
sale of the new seven-year notes, though a weak sale of
five-year notes on Wednesday showed that jitters remain over
buying the intermediate-dated debt.
    Five- and seven-year notes are the most sensitive to Fed
interest rate policy and have been the weakest performers in the
recent selloff. The $35 billion five-year note sale saw the
lowest demand since September 2009, with a bid-to-cover ratio of
2.45 times.
    Thursday's seven-year auction, however, may be boosted by
month-end extension buying as well as from being the last of the
three auctions this week.
    Traders expect the new seven-year notes to price at yields
of 1.95 percent, according to trading in the
"when-issued" market, around one basis point higher than the
notes are trading in the secondary market at 1.94 percent
.
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