* Yields back off eight-month highs reached last week
* Treasury to sell $21 billion of 10-year notes
* 30-year bond yields seen heading back toward 3 percent
By Chris Reese
NEW YORK, Jan 9 U.S. Treasury debt was trading
steady to slightly lower in price on Wednesday ahead of the sale
of $21 billion of 10-year notes and as strength in stocks
undermined the safe-haven appeal of U.S. government debt.
Yields have generally been easing since hitting an
eight-month high on Friday after minutes from the Federal
Reserve's December policy meeting sparked some worries the
central bank could pare back its asset purchases sooner than
some analysts were expecting if the economy improves enough.
The Treasury will sell $21 billion of 10-year notes on
Wednesday and $13 billion of 30-year bonds on Thursday. The sale
of $32 billion of three-year notes on Tuesday drew strong
non-dealer bidding. The high yield was 0.385 percent, in line
Ahead of Wednesday's sale, benchmark 10-year Treasury notes
were trading 2/32 lower in price, their yield little
changed from late Tuesday at 1.87 percent. Yields on Friday
touched 1.98 percent, the highest since late April.
Strong demand in Wednesday's auction would likely push
yields lower to "bring yield support at 1.83 under pressure,
with further downside in yields exposing 1.77 thereafter," said
Michael Cloherty, head of U.S. rates strategy at RBC Capital
Markets in New York.
"Conversely, a sloppy auction result would likely prompt a
break back above 1.89. We note however, that buying interest
surfaced in earnest in the recent sell-off toward 1.96, and we
anticipate that near-term re-tests of this level will draw a
similar reaction," Cloherty said.
Yield resistance at 2.04 percent "must be taken out to
establish a more sustained bearish phase," he said.
In the when-issued market, considered a proxy for where the
yield will fix at auction, 10-year notes were
trading with a yield near 1.87 percent.
Thirty-year Treasury bonds were trading 4/32
lower in price, their yield little changed from late Tuesday at
3.07 percent. Thirty-year bond yields on Friday rose to 3.18
percent, marking the highest since late April, and some analysts
were calling for a further pullback in the yield.
"Three days of low volatility and a continued grind lower in
yield, through the 3.08 percent breakdown area from Thursday,
appears to be setting up for a post-auction shift to a lower
yield range under 3 percent in bonds," said Richard Gilhooly,
interest rates strategist at TD Securities in New York.