TREASURIES-U.S. bond prices little changed, tapering concerns weighed

Tue Jan 21, 2014 3:41pm EST

Related Topics

* U.S. Fed on track to taper bond purchases next week - WSJ

* Some traders cite mortgage hedging, in part, for lower prices

* Fed buys $1.39 billion long-dated Treasuries

* Winter storm zaps trading volumes

By Sam Forgione

NEW YORK, Jan 21 (Reuters) - Most U.S. Treasuries prices were little changed on Tuesday, with benchmark yields holding near their five-week lows, overcoming earlier concerns about the Federal Reserve further paring its bond-buying next week.

Bond prices fell initially on worries stemming from an article in The Wall Street Journal that said the U.S. central bank will likely reduce its monthly purchases of Treasuries and mortgage-backed securities by another $10 billion to $65 billion.

But they recovered from their modest decline after investors grew more comfortable with the likelihood of a further Fed pullback.

"Once the market had more time to digest the impact of a $10 billion Fed taper in January, buyers returned," said Jeffrey Young, rates strategist at Nomura Securities International in New York.

Trading volumes were also below average as a fast-moving winter storm hitting the northeastern United States was expected to disrupt the evening commute for Wall Street traders and millions of others in the region.

Such a move followed the somewhat surprising decision from the Fed to begin shrinking its third round of quantitative easing (QE3) at its December policy meeting by reducing its bond purchases as of January by $10 billion from $85 billion.

Fed officials will hold their next monetary policy meeting on Jan. 28-29.

"The Federal Reserve is on track to trim its bond-buying program for the second time in six weeks as a lackluster December jobs report failed to diminish the central bank's expectations for solid U.S. economic growth this year," The Wall Street Journal story published late Monday said, citing interviews with officials and their public comments.

Some analysts downplayed the article in The Wall Street Journal as a key factor exerting downward pressure on Treasuries prices. They pinned the modest decline on light volume and hedging tied to mortgage holdings after a U.S. holiday weekend.

U.S. financial markets were closed on Monday in observance of the Martin Luther King Jr. holiday.

As traders speculate on possible further tapering, the Fed bought $1.39 billion in Treasuries due in 2038 to 2043, its latest QE3 purchase.

The 30-year bond managed to climb higher due to traders positioning for the Fed's latest buyback operation at 11 a.m. (1600 GMT). It last traded up 8/32 with a yield of 3.743 percent, down one basis point from Friday's close.

Benchmark 10-year Treasury notes were unchanged in price with a yield of 2.827 percent.

The 10-year yield was as high as 2.867 percent overnight after hitting 2.818 percent last Friday, which was its lowest since Dec. 11, according to Reuters data.

Traders and analysts anticipated the 10-year yield to hold in a range of 2.75 to 3.00 percent heading into the Fed policy meeting next week.

"Yields will be well anchored within that range," said Young of Nomura. "To break either bound, there needs to be a big change in the status quo, which won't come within the next week," he said.

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