TREASURIES-Prices edge higher before Fed buyback
* Prices increase before Fed 10-year note buyback * Corporate rate hedging seen weighing on the market * Treasury to sell $99 billion new supply next week By Karen Brettell NEW YORK, July 19 (Reuters) - U.S. Treasuries prices edged up on Friday before the Federal Reserve was due to buy 10-year notes as part of its ongoing purchase program, with some traders expecting that the market could come under pressure later in the day as companies sell rate locks in anticipation of new bond sales. The Federal Reserve will buy between $2.75 billion and $3.50 billion in debt due 2020 to 2023 on Friday as part of its ongoing purchase program. That may be an opportunity for traders to enter into short positions, before companies are expected to sell rate locks and as the Treasury is due to sell $99 billion in new coupon-bearing supply next week. "On the last few Fridays is there has been a decent amount of rate lock selling from corporations, which could pressure the market," said Kevin Walter, head of Treasuries trading at BNP Paribas in New York. Companies sold around $16 billion in high grade debt this week, led by big banks including Citigroup, Bank of America, and Goldman Sachs, and a similar amount of investment grade issuance is expected next week, according to IFR, a Thomson Reuters publication. Benchmark 10-year notes were last up 2/32 in price to yield 2.52 percent, down from 2.53 percent late on Thursday. Safe haven U.S. government bonds were supported on Friday after the City of Detroit filed for bankruptcy on Thursday, the largest-ever municipal bankruptcy in U.S. history, and technology giants Google and Microsoft both announced disappointing quarterly results, adding to concerns over how far the ongoing equity rally will extend. At the same time, anticipation of rate lock selling was seen limiting price gains. "There has been constructive news for bonds over the last 20 hours or so, we had a pretty successful TIPS auction, some weakness out of Google and Microsoft, and the bankruptcy announcement out of Detroit, but the market can't really get up and go and I think that's in anticipation of some of the rate lock selling later this afternoon," Walter said. The Treasury sold $15 billion in 10-year Treasuries Inflation-Protected Securities (TIPS) on Thursday to solid demand. Demand for intermediate-dated Treasuries, which are the most sensitive to Fed rate policy, will also be tested next week when the Treasury sells $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion in seven-year debt on Thursday. "I think the five year is a huge test. We've made so many strides in the five year that the idea that we can continue to do that and are rewarded for risking more capital at next week's sale will be a bit vote of more or less confidence in the entire economic growth story," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. Five-year notes yields have rallied from 1.63 percent on July 8 to 1.30 percent on Friday, as Fed officials have tried to ease fears over the pace in which the U.S. central bank will withdraw its record stimulus. Five-year fell to their lowest levels in almost a month after Fed Chairman Ben Bernanke told a House of Representatives panel on Wednesday that the Fed's plans to scale back its bond purchases later this year are not set in stone, and still depend on the strength of the economy.
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