By Luciana Lopez and Ellen Freilich
NEW YORK Jan 4 Yields on benchmark U.S.
Treasuries hovered around eight-month highs on Friday on worries
the Federal Reserve could pare asset purchases by the end of the
year if the economy improves enough.
Benchmark 10-year notes edged slightly higher after a
Thursday selloff, when meeting minutes from the Federal Reserve
hinted at growing concerns within the bank about the risks of
the stimulus program.
St. Louis Fed President James Bullard added to those
concerns on Friday when he said that the Fed could find itself
in a position to think about halting its large-scale asset
purchases this year if the economy does well in 2013.
"It's not at all surprising to see Treasuries begin to move
to a higher rate range to account for that increased risk that
(quantitative easing) won't see the end of 2013," said William
O'Donnell, head of U.S. Treasury strategy at RBS Securities in
Treasuries could see a wider range than that which held from
mid-August through the end of last year on increased
uncertainty, he said, with higher rates yet to come despite the
potential for occasional dips.
"Without the Fed's support, markets are beginning to harbor
some concerns that at some point this year we're going to have
to do such things as taking down $13-$16 billion monthly 30-year
auctions without any Fed backup," O'Donnell added.
Most economists at Wall Street's top financial institutions
expect the Federal Reserve in 2013 to e nd the program with which
it bought Treasury debt in an effort to stimulate the economy,
according to a Reuters poll on Friday. [I D:nN9E8M2022]
Benchmark 10-year Treasury notes were up 4/32 in
price in afternoon trade, with their yields at 1.899 p ercent.
Yields earlier on Friday touched their highest since May.
Ten-year U.S. debt is considered a benchmark for a number of
borrowing instruments, including mortgage rates.
Thirty-year bonds pared early losses to trade
higher, recovering some ground after a steep slide this week
took those yields to eight-month lows, as well. The bonds were
trading up 20/32 to yield 3.092 pe r cent lat e on Friday.
Stronger-than-expected data from the Institute for Supply
Management also a dded to evidence of an improving economy. The
vast U.S. services sector in December grew at its fastest clip
in 10 months, boosted by a rise in new orders, according to the
But job growth remained tepid, with steady hiring in
December still short of levels needed to bite significantly into
"Far more important for the bond market than the employment
numbers was the reminder that just because the Fed will do QE
for a long time doesn't mean they will do the same amount of
QE," said UBS U.S. chief economist Maury Harris. "Whether the
Fed does $85 billion a month in QE, or $45 billion a month,
makes a big difference to the bond market."
In December, the Fed announced it would extend its monthly
purchases of $40 billion in mortgage securities and also buy $45
billion in Treasuries each month.
But the minutes released on Thursday hinted at unease about
further expanding the Fed's $2.9 trillion balance sheet, which
it expanded sharply in response to the financial crisis and
recession of 2007-2009.
"Several (officials) thought that it would probably be
appropriate to slow or to stop purchases well before the end of
2013, citing concerns about financial stability or the size of
the balance sheet," the minutes said, referring to the narrower
group of voting Fed members.