TREASURIES-Yields fall from two-year highs on year-end buying

Mon Dec 30, 2013 3:06pm EST

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* Volumes thin ahead of holiday
    * Yield on 10-year Treasury note remains near 3 percent
    * Investors, banks borrow record $103 bln Treasuries from
Fed

    By Luciana Lopez
    NEW YORK, Dec 30 (Reuters) - Benchmark U.S. Treasury debt
yields slipped but held near two-year highs on Monday as
year-end buying boosted prices, though volumes were light as the
New Year's Day holiday approaches.
    "Today is the day before the last trading day of the year.
That's really its claim to fame," said Ian Lyngen, senior
government bond strategist at CRT Capital in Stamford,
Connecticut.
    "Expectations for significant price action are muted," he
added, noting thinly-staffed trading desks.
    The pull-back reversed some of the advance in yields after
the U.S. Federal Reserve this month said it will scale back its
monthly purchases of Treasuries and mortgage-backed securities
by $10 billion to $75 billion in January as the economy
improves. 
    The 10-year Treasury note rose 9/32 in price on
Monday to yield 2.974 percent, after the yields rose to 3.002
percent on Friday, the highest since July 2011.
    The benchmark yield has risen about 125 basis points since
the end of last year as the world's biggest economy has regained
some momentum. Equities have hit a series of record highs as
investors have turned away from safe-haven government debt to
scoop up riskier assets.
    Demand for low-risk debt by banks and investors tidying
balance sheets for year-end helped demand for Treasuries.
    This year-end demand was also felt in the repo market, where
the New York Federal Reserve on Monday accepted a record
$102.573 billion in cash against Treasuries collateral in its
reverse repo facility, which it has been testing since
September.
    The 30-year Treasury note rose 18/32 in price to
yield 3.906 percent, down from a yield of 3.945 percent late on
Friday.
    The Fed has suggested short-term interest rates will stay
near zero over the near term because of the combination of a
still-uncertain job market and benign inflation pressures. 
    Those price pressures could become a major focus in the
coming year, said Jim Vogel, an interest rate strategist at FTN
Financial in Memphis, Tennessee.
    "Assuming economic growth improves next year as forecasted,
the story for bond investors will be the track of inflation,"
Vogel said.
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