* Prices fall as stocks gain, reducing safety bid
* Fed will buy $4.75-5.75 bln in notes due 2017-2018
* Debt ceiling debate starts to gain focus, may boost bonds
By Karen Brettell
NEW YORK, Jan 11 U.S. Treasuries prices fell on
Friday after the market digested this week's new supply of $66
billion and investors weighed an improving economy against
concerns over impending battles over the U.S. debt ceiling.
Treasury debt yields have stabilised this week after a
dramatic jump in the first three days of the year as investors
bet on the prospects of an improving economy and after minutes
from the Federal Reserve's December meeting raised the
possibility that the central bank may end bond purchases before
Investors are now grappling to find a new range for the
debt, with some market participants expecting that an improving
economy should send yields higher, though uncertainty remains
over raising the U.S. debt ceiling.
"You do have a better atmosphere and little more appetite
for risk out there, which means Treasuries usually suffer the
brunt of that," saud Sean Murphy, a Treasuries trader at Societe
Generale in New York.
"Overall the mood of the market is a little bit random, the
market is still trying to work out what the range should be," he
Benchmark 10-year notes were last down 6/32 in
price to yield 1.93 percent, up from 1.90 percent late on
The yields are down from a high of 1.98 percent last Friday,
and have increased from around 1.70 percent at year-end.
Concern over new battles in Washington over how to cut
federal spending, reduce the deficit and raise the debt ceiling
is likely to add a safety bid that will hold bond yields down
even as some investors see the overall direction for yields as
still pushing higher.
"Overall it does feel like rates would like to go higher,"
said James Newman, head of Treasuries and agency trading at
Keefe, Bruyette and Woods in New York. But "the debt ceiling got
in everyone's head, how that will play out."
Investors will now be closely watching a speech that Fed
Chairman Ben Bernanke is due to give on Monday at the University
of Michigan for any further indications of how long the Fed's
latest bond purchase program will last.
"He's the one pulling the strings and he's the one that
wants the QE, so we'll see if he counterbalances some of the
hawkish comments," said Newman.
The Fed will buy between $4.75 billion and $5.75 billion in
notes due from 2017 and 2018 on Friday as part of its latest
quantitative easing program, and it has scheduled Treasuries
purchases for every day of next week.
Treasuries also firmed earlier on Friday after an
acceleration in China's consumer inflation rate narrowed the
scope for further monetary easing, causing selling pressure in
stock markets and supporting safe-haven instruments such as U.S.
"We had ... disappointing inflation data out of China and
the European equity market has run out of steam this morning -
maybe a bit of profit taking - consequently Treasuries have
recouped some of their losses." said RIA Capital Markets bond
strategist Nick Stamenkovic.