Long bond price rises as traders await Yellen

NEW YORK Tue May 6, 2014 3:12pm EDT

U.S. Federal Reserve chair Janet Yellen speaks to the Economic Club of New York in New York April 16, 2014. REUTERS/Brendan McDermid

U.S. Federal Reserve chair Janet Yellen speaks to the Economic Club of New York in New York April 16, 2014.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - The 30-year bond and other long-maturity U.S. Treasuries rose on Tuesday in thin, meandering trade ahead of potentially market-moving congressional testimony by Federal Reserve Chair Janet Yellen.

Traders were still puzzling over Friday's drop in 30-year yields to 10-month lows and were searching for signals about where the government debt market was headed, according to George Goncalves, U.S. rates strategist head at Nomura Securities.

"People are questioning what the market's next move will be. Volumes are low, and price moves are one or two basis points. There's no conviction," Goncalves said.

U.S. 30-year bond yields fell on Friday to as low as 3.34 percent, their weakest level since June 19, 2013, after hitting session highs earlier in the day on unexpectedly strong U.S. payrolls growth in April.

On Tuesday, the 30-year's yield touched a low of 3.371 percent and in late afternoon trading was at 3.3805 percent, reflecting a price rise for the day of 17/32.

"Ukraine and the hunger for yield are driving the long end," said Patrick McCluskey, senior fixed income strategist at Wells Fargo Advisors. "Once the violence in Ukraine subsides, and it will, normal growth patterns will resume."

After small losses in earlier overseas trading, prices of 10-year notes were up 5/32 in New York, yielding 2.595 percent. On Friday, the issue yielded as little as 2.57 percent, a three-month trough.

U.S. central bank leader 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.

Prices of Treasuries were little affected by a Treasury Department auction on Tuesday of $29 billion of 3-year bills, which was the first of three large deals set for this week. The deal's high yield was 0.928 percent.

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.

(Editing by Bernadette Baum and Nick Zieminski)

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