TREASURIES-Prices slip in light trading, Fed to buy bonds

Mon Dec 23, 2013 9:34am EST

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* Prices slip in light trade, market closes early on Tuesday
    * Fed to buy $1.25 bln - $1.75 bln bonds due 2036-2043
    * CME to adjust some bond futures after price spike

    By Karen Brettell
    NEW YORK, Dec 23 (Reuters) - U.S. Treasuries prices slipped
on Monday in light trading and five-year notes yields rose to
more than two-month highs as investors unwound trades made
before last week's Federal Reserve meeting.
    Intermediate-dated debt has underperformed since the Fed
said Wednesday it would begin to reduce the size of its bond
purchase program by $10 billion to $75 billion from January.
    Much of the poor performance was likely due to traders
pulling out of bets that the yield curve was set to steepen.
    "There was some poor positioning, people thought the curve
would steepen out and you've seen some unwinds of the steepening
trade, which has hurt the belly," said Justin Lederer, an
interest rate strategist at Cantor Fitzgerald in New York.
    Five-year notes were last down 1/32 in price to
yield 1.69 percent. The yields have risen from around 1.50
percent before the Fed's statement.
    Benchmark 10-year notes were last down 4/32 in
price to yield 2.91 percent. They have risen from 2.84 percent
in the same time frame.
    The Fed will buy between $1.25 billion and $1.75 billion in
bonds due 2036 and 2043 on Monday in its only buyback this week.
    The bond market closes early on Tuesday, and will be closed
Wednesday for the Christmas holiday.
    The CME said it would adjust the price for some March 14
bond futures trades after the contracts saw an unusual
price spike in overnight trading. 
    The move caused a corresponding 10-basis-point plunge in
thirty-year bond yields to 3.74 percent, before the
yields rose back to last trade at 3.83 percent.
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