TREASURIES-U.S. bond prices rise before 10-year note supply

Wed Nov 13, 2013 11:27am EST

Related Topics

* U.S. to sell $24 billion 10-year notes, part of refunding

* Benchmark yields retreat from eight-week high

* Fed's Bernanke to speak about central bank to teachers

* Fed purchases $1.39 billion TIPS for QE3 program

By Richard Leong

NEW YORK, Nov 13 (Reuters) - U.S. Treasuries prices rose on Wednesday as investors prepared for a $24 billion auction of 10-year notes, the second leg of the Treasury's $70 billion quarterly refunding this week.

The 10-year note sale followed Tuesday's solid $30 billion three-year debt offering, which fetched the strongest bidding since March. The U.S. Treasury will complete this week's refunding with a $24 billion 30-year bond sale on Thursday.

"The market seems pretty well set up for the auctions. That's giving people some confidence," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

Weaker global equity prices also rekindled some safe-haven bids for Treasuries, whose yields retreated from eight-week highs set on Tuesday.

Benchmark yields had spiked higher last Friday in reaction to data that showed surprisingly strong domestic job growth in October despite a 16-day federal government shutdown.

U.S. employers added 204,000 workers last month, far more than the 125,000 forecast by economists polled by Reuters, while the jobless rate as expected edged up to 7.3 percent, according to the Labor Department.

The latest payroll report raised speculation whether the Federal Reserve might scale back its $85 billion monthly purchases of Treasuries and mortgage-backed securities at its December policy meeting.

Even after the encouraging jobs data, most Wall Street analysts still do not expect policy-makers to pare their third round of quantitative easing, which is aimed at lowering unemployment and achieving the Fed's 2 percent inflation target, until some time in 2014.

Fed officials who spoke publicly on Tuesday signaled that the economy, while showing some improvement, still needs support from the current level of stimulus.

"Now people are over-thinking this latest employment report. Are we close to tapering? I don't think so, nothing fundamentally has changed," said Bonnie Baha, head of global developed credit group at DoubleLine Capital in Los Angeles.

More Fed officials were scheduled to speak on Wednesday.

Cleveland Fed President Sandra Pianalto discussed women and the economy at an event in Philadelphia.

Fed Chairman Ben Bernanke will speak about the central bank to teachers at an event in Washington at 7 p.m. (0000 GMT). At the same time, Atlanta Fed President Dennis Lockhart will give brief remarks at a local event.

In the meantime, the Fed bought $1.39 billion in Treasury Inflation-Protected Securities as the latest purchase for its QE3 program.

On the open market, benchmark 10-year notes were up 8/32 in price, yielding 2.737 percent, down 3 basis points from late on Tuesday.

The 30-year bond was 12/32 higher in price with a yield of 3.833 percent, down 2 basis points from late on Tuesday.

Benchmark yields have stayed in a 30-basis-point band since the Fed surprised investors two months ago by deciding not to taper its QE3 purchase program. Analysts anticipate this narrow trading will persist until there is more proof the economy is breaking out of its current sluggish pace of growth.

"We have been grinding in a range. We should continue to do so," TD's Goldberg said.

Few investors changed their Treasuries positions in the latest week, according to a survey from J.P. Morgan Securities released on Wednesday.

Nineteen percent of the firm's Treasuries clients surveyed in the week ended Nov. 12 said they held more longer-dated U.S. government debt than their portfolio benchmarks, the same amount as last week. On the other hand, 25 percent said they held fewer longer-dated Treasuries than their benchmarks, up slightly from 23 percent the previous week.

In "when-issued" activity, traders expected the upcoming 10-year note issue to sell at a yield of 2.759 percent. This was higher than the 2.657 percent yield at the 10-year auction in October.

This week's coupon debt auctions were expected to raise $63.5 billion to repay investors for maturing federal debt they hold and $6.5 billion for the government.

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