* Fed buys $5.56 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 dipped
in choppy trading on Friday after the market digested this
week's new supply of $66 billion and investors grappled with
finding a new range for the debt as they weighed an improving
economy against impending battles over the U.S. debt ceiling.
Treasury debt yields have largely stabilized 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 U.S. central bank may end bond purchases
"Overall the mood of the market is a little bit random, the
market is still trying to work out what the range should be,"
said Sean Murphy, a Treasuries trader at Societe Generale in New
"You do have a better atmosphere and little more appetite
for risk out there which means Treasuries usually suffer the
brunt of that," he added.
Benchmark 10-year notes were last down 3/32 in
price to yield 1.91 percent, up from 1.90 percent late on
Yields are down from a high of 1.98 percent last Friday,
though they 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 trend for yields as still pushing
"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 he noted that "the
debt ceiling got in everyone's head, how that will play out."
Investors will closely watch a scheduled speech by Fed
Chairman Ben Bernanke 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 bought $5.56 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
Treasuries had firmed earlier on Friday after an
acceleration in China's consumer inflation rate narrowed the
scope for further monetary easing in China, causing selling
pressure in stock markets and supporting safe-haven instruments
such as U.S. debt.
"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.