TREASURIES-U.S. 10-year yield highest in over 2 years

Fri Dec 27, 2013 8:50am EST

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* U.S. 10-year yield breaks above 3 percent on light volume
    * Two-to-10-year yield gap grows to widest since 2011

    By Richard Leong
    NEW YORK, Dec 27 (Reuters) - U.S. benchmark Treasuries
yields rose above 3 percent to their highest level in more than
two years on Friday as traders pared their bond holdings in
preparation for the Federal Reserve buying fewer bonds in 2014.
    The latest selloff helped to assure the Treasuries market
will finish one of its worst years ever as the 10-year yield has
risen 1.25 percentage points this year.
    Last week, the U.S. central bank said it will reduce its
monthly purchases of Treasuries and mortgage-backed securities
by $10 billion to $75 billion in January due to evidence of an
improving economy. At the same time, the Fed signaled its
commitment to hold short-term interest rates near zero because
unemployment has remained higher than where policy-makers like
and inflation has been stuck below their 2 percent target.
    "The economic data have been better-than-expected, while at
the same time the Fed is promising to be easier for longer. Then
there's more chance of inflation later, which is driving the
10-year yield higher," said Lou Brien, market strategist at DRW
Trading in Chicago.
    There was no major economic release on Friday and the Fed
will not resume buying Treasuries until later next week.
    On the open market, the 10-year Treasury note 
last traded down 7/32 in price for a yield of 3.019 percent, up
nearly 3 basis points from late on Thursday.
    The 10-year yield, a benchmark for mortgages and other
long-term borrowing costs, touched 3.02 percent earlier, the
highest intraday level since July 2011, according to Reuters
data.
    The yield spread between two-year and 10-year Treasuries
grew to 2.61 percent, its widest since July 2011, up from 2.58
percent on Thursday and 2.51 percent a week earlier.
    Analysts downplayed the 10-year yield breaching the 3
percent threshold for the second time this year due to the light
post-Christmas trading volume.
    "People are not going to set up new positions right now
based on this number," Brien said.
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