TREASURIES-U.S. bond prices edge up on bargain-hunting, Fed buy

Wed Sep 4, 2013 10:32am EDT

Related Topics

* Concerns over a strike on Syria lend support to bond prices

* Fed's Beige Book, Williams, Kocherlakota on tap

* Fed to buy $1.25 bln to $1.75 bln in long-dated Treasuries

By Richard Leong

NEW YORK, Sept 4 (Reuters) - U.S. government debt prices edged up on Wednesday, as bargain-minded investors emerged to help stabilize a market that has been on edge over the Federal Reserve possibly deciding to reduce its bond purchases in two weeks.

The Treasuries market was also supported by traders looking to profit from the Fed's latest purchase operation. It plans to buy $1.25 billion to $1.75 billion of Treasuries that mature in Feb. 2036 through May 2043 as part of its planned $45 billion of Treasury debt purchases in September.

Longer-dated Treasury yields rose near two-year highs on Tuesday on unexpectedly strong factory data that might allow the U.S. central bank to pare its $85 billion monthly purchases of Treasuries and mortgage-backed securities, known as QE3.

Yields were held in check on safehaven bids linked to jitters over a U.S. military strike against Syria for its use of poison gas that U.S. officials say killed 1,429 civilians last month. President Barack Obama won the backing of key federal lawmakers in his call for limited action on Syria. It is unclear when a strike will occur after traders had expected such a move this past weekend.

"People are waiting for what happens with Syria. It might be positive for Treasuries," said Justin Lederer, Treasury strategist with Cantor Fitzgerald in New York.

A survey from J.P. Morgan Securities released on Wednesday showed more investors added longer-dated Treasuries on Tuesday compared to a week earlier. The share of these "long" investors increased from 17 percent to 23 percent, the highest level since July 22, J.P. Morgan said.

Still the marquis event for the bond market this week is the government's payroll report on Friday. Strong jobs gains would seal expectations the Fed would scale back its bond purchases starting in October, while a weak figure would revive bets the central bank would delay such a move.

Economists polled by Reuters estimate U.S. payrolls expanded by 180,000 jobs in August while the unemployment rate remained steady at 7.4 percent.

Other recent data suggested the U.S. economy while still growing has slowed due to sluggish global demand and the spike in mortgage rates.

The government reported the U.S. trade gap grew a tad more than expected in July as exports slipped after contributing to a huge contraction in the deficit the previous month.

Investors will receive anecdotal views on the economy when the Fed releases its Beige Book at 2 p.m. (1800 GMT), two weeks before its next policy meeting.

They will also digest views later Wednesday from two Fed officials, San Francisco Fed President John Williams and Minneapolis Fed chief Narayana Kocherlakota. Neither are voters this year.

U.S. benchmark 10-year Treasury notes edged up 2/32 in price, yielding 2.856 percent, down 0.7 basis point from late on Tuesday. The 10-year yield was 8 basis points below a 25-month high recorded on Aug. 22, according to Reuters data.

The 30-year bond rose 8/32 in price with a yield of 3.779 percent, down 1.4 basis points from Tuesday's close. The 30-year yield was about 16 basis points below its two-year high set two weeks ago.

While longer-dated debt yields have traded in a volatile manner on worries about less Fed purchases, short to medium term yields have risen on speculation over the timing on the Fed's first rate increase.

"The market is adjusting to the idea that low rates are not going to be here forever," said Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities USA in New York.

The yield on two-year Treasuries closed at 0.4190 percent on Tuesday, which was its highest level since late July 2011, while the yield on five-year notes finished at 1.682 percent, its highest level since early July 2011.

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