TREASURIES-Prices perk up ahead of debt sales, Yellen testimony

Tue May 6, 2014 10:28am EDT

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* Long maturities show modest gains

* First of three Treasury auctions due Tuesday

* Fed chair talks to Congress later in week

By Michael Connor

NEW YORK, May 6 (Reuters) - Prices of U.S. Treasuries inched upwards on Tuesday as bond traders looked ahead to government auctions of $69 billion in new debt and potentially market-moving congressional testimony by Federal Reserve Chair Janet Yellen.

After small losses in earlier overseas trading, prices of 10-year notes were up 2/32 in New York, yielding 2.6041 percent. On Friday, the issue yielded as little as 2.57 percent, a three-month trough.

U.S. 30-year bond yields stood at 3.398 percent, reflecting a price rise of 6/32. Shorter Treasury maturities were flat or little changed.

"We're having a little mini rally now but it's hard to see a narrative based on fundamentals when Yellen will be the topic of discussion for everyone," said Michael Cloherty, head of U.S. interest rate strategy at RBC Securities.

Yellen was due to speak at congressional hearings on Wednesday and Thursday. Though widely expected by analysts to maintain a dovish policy stance, she will be closely watched for hints on raising interest rates, which many forecasters see starting in 2015.

Cloherty said he wanted details about how Fed policymakers will decide on tightening. "It's been a while since we had that," he said.

Trading in Treasuries was also shaped by Tuesday's scheduled Treasury Department auction of $29 billion of 3-year bills, which is the first of three large deals set for this week. A 10-year note auction for $24 billion is scheduled for Wednesday and a $16 billion auction of 30-year bonds is due on Thursday.

"Normally you'd expect things to cheapen up a bit" ahead of auctions, Cloherty said. "But we haven't seen much in the way of concessions. Today's is the easiest of the three. And, if we don't get much in the way of concession, things could get sloppier for the 10- and 30-year."

Treasuries reacted little to news of U.S. trade data showing that America's monthly trade deficit in March had narrowed as U.S. exports rose. The Commerce Department said the trade gap narrowed 3.6 percent to $40.4 billion.

Economists polled by Reuters had forecast the trade deficit falling to $40.3 billion in March.

"It was what everyone expected and in line with forecasts," Cloherty said. (Editing by Bernadette Baum and Nick Zieminski)

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