TREASURIES-U.S. bond prices fall before 10-year note supply
* U.S. to sell $21 billion 10-year notes at 1 p.m. (1800 GMT) * Fed purchases $1.575 billion long-dated Treasuries * Proposed U.S. budget deal seen reducing drag on economy * Most economists see Fed tapering in early 2014-Reuters poll By Richard Leong NEW YORK, Dec 11 (Reuters) - U.S. Treasuries prices fell on Wednesday as investors pared bond holdings before a $21 billion auction of 10-year notes, the second leg of a three-part $64 billion sale of government debt this week. It was unclear how the reopening of the 10-year issue originally sold in November would fare in the wake of a proposed two-year federal budget deal announced late Tuesday, which analysts say would bolster the economy and offset possibly less stimulus from the Federal Reserve by early next year. The Federal Open Market Committee, the U.S. central bank's policy setting group, will convene next Tuesday and Wednesday when policymakers decide whether to scale back the current $85 billion monthly purchases of Treasuries and mortgage-backed securities, known as QE3. The bond market retraced some of Tuesday's gains following a well-bid $30 billion sale that day of new three-year notes. Wednesday's 10-year auction, scheduled for 1 p.m. (1800 GMT), will be followed by a $13 billion reopening of a 30-year bond issue on Thursday. "It's been a grind so far. It's in part because of the positioning for the 10-year and 30-year auctions and in front of next week's FOMC meeting," said Alex Manzara, vice president at R.J. O'Brien and Associates in Chicago. The market decline was mitigated by losses in Wall Street stocks and by the Fed's ongoing bond purchases. It bought $1.575 billion in Treasuries due in May 2038 to February 2043. On the open market, the benchmark 10-year note fell 8/32 in price to yield 2.826 percent, up 3 basis points from late on Tuesday. The 10-year yield had climbed to 2.93 percent last Friday, the highest since Sept. 11, in a reaction to a stronger-than-expected report for November. The 30-year Treasury bond last traded 15/32 lower in price for a yield of 3.857 percent, up 3 basis points from Tuesday's close. The 30-year yield reached 3.980 percent last Friday, which was the highest since August 2011. In "when-issued" activity, traders expected the reopened 10-year note issue to fetch a yield of 2.831 percent . This was higher than the 2.750 percent yield set last month when this 10-year note was introduced. Investors' reaction to the proposed bipartisan budget agreement has been muted. If Congress does approve the deal, which President Barack Obama supports, it might make it easier for Fed policymakers to begin tapering QE3 early next year, traders and analysts said. Fed officials have cited the budget impasse as a reason to not reduce bond purchases in September when Wall Street had widely expected the FOMC to do so. "While we continue to suggest some degree of caution due to the highly polarized environment in Congress, we believe the budget deal will be passed, removing a key impediment for the Fed to begin tapering QE purchases in January," said Gennadiy Goldberg, interest rate strategist with TD Securities in New York. In a Reuters poll released on Wednesday, 32 economists expect the Fed to taper QE3 in March, while 22 said it would scale back its bond-buying program in January. Only 12 economists expected a tapering announcement next week.
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