TREASURIES-Prices rise, reversing drop after earlier taper talk

Fri Nov 22, 2013 3:25pm EST

Related Topics

* Fed bought $1.57 billion Treasuries maturing 2038 to 2043

* Next week's 2-, 5- and 7-year Treasury supply weighs on those sectors

* Fed's Lockhart, George expect stimulus taper debate at December meeting

By Luciana Lopez

NEW YORK, Nov 22 (Reuters) - Prices for longer-dated U.S. Treasuries rose on Friday, retaking ground lost earlier in the week on worries about a Federal Reserve pullback in stimulus.

The curve this week shifted to its steepest since 2011, with the jump between shorter-dated yields and longer-dated yields rising, as investors saw the Fed possibly paring back its asset-purchase program as soon as this year.

The question of when the Fed might slow its $85 billion per month in purchases of Treasuries and mortgage-backed securities has become a key factor not just for U.S. government debt but for a broad range of asset classes around the world.

"It's a quick reversal from where we were Wednesday, (when) it steepened out nicely," said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York.

Treasuries sold off sharply on Wednesday after Federal Reserve meeting minutes suggested the tapering process could begin at an upcoming meeting.

But Fed officials have underscored that any pullback decision depends on data about the health of the world's biggest economy.

If the bank does pare its buying of longer-dated Treasuries, long-term rates would tend to rise. At the same time the Fed has insisted that official short-term rates would remain low, with some economists seeing the federal funds rate near zero even to early 2016.

"Therein lies the rub because what the Fed giveth to the front-end, it taketh from the back," said David Ader, Treasury strategist at CRT Capital Group in Stamford, Connecticut.

While shorter-term Treasuries posted small changes, anticipating next week's supply, benchmark 10-year Treasury notes rose 9/32 in price to yield 2.752 percent, compared to 2.784 percent late on Thursday.

The 30-year bond rose 26/32 in price to yield 3.838 percent, from 3.884 percent late on Thursday.

On Friday, Atlanta Fed President Dennis Lockhart told CNBC the debate over reducing the pace of the Fed's massive bond buying program would be "on the table" at the Fed's next policy meeting on December 17-18.

Lockhart said he believed the net impact of the Fed's asset purchases had been positive, and that "quite a bit of progress" had been made to help spur job growth and reduce unemployment. Lockhart is not a voting member of the FOMC in 2014.

Kansas City Fed President Esther George also said a tapering discussion would occur at the Fed's next meeting and seemed to characterize such conversations as routine.

"These are discussions we have at each meeting. So I would expect we will continue to discuss that as we go forward," she said, speaking on the sidelines of a conference in Paris.

Analysts said Treasuries could be rangebound next week, when the U.S. Thanksgiving holiday will keep markets closed on Thursday.

The Fed on Friday bought $1.57 billion in Treasuries maturing between May 15, 2038, and Feb. 15, 2043, as part of its QE3 program.

The Treasury will sell two-, five- and seven-year Treasury notes next week.

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