* Fed buys $5.56 billion in notes due 2017-18
* Debt ceiling debate starts to gain focus, may boost bonds
* Fed Chairman Bernanke to speak on Monday
By Luciana Lopez and Karen Brettell
NEW YORK, Jan 11 U.S. Treasuries prices gained
in choppy trading on Friday as investors struggled to find a new
range for the debt, weighing a brighter economy against
impending Washington budget battles.
Yields have largely stabilized after jumping last week on
hints of growing unease within the Federal Reserve on the bank's
"It's been quite a back and forth roller coaster today,"
said Justin Lederer, Treasury strategist at Cantor Fitzgerald in
New York. "I think the market holds in here, I don't expect a
major selloff overall. I think we remain rangebound for some
Yields for benchmark 10-year U.S. government debt could
trade within a range of about 1.75 percent to 1.97 percent in
coming sessions, Lederer said, with a break above 2 percent
possibly signaling a further move upward.
Benchmark 10-year notes were last up 10/32 in
price to yield 1.864 percent, 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.
Until markets get lasting resolution on budget worries in
Washington, analysts say investors could be wary of staking out
Policymakers are slugging it out over how to cut federal
spending, reduce the deficit and raise the debt ceiling. Those
discussions will almost certainly be contentious - the August
2011 round of debt ceiling debates saw the U.S. credit rating
cut from its sterling AAA by Standard & Poor's.
That potential for political acrimony, in turn, is fueling a
safety bid that's keeping yields down, even as some investors
see the trend 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 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 not speaking off a prepared text, so it's hard to see
that he will use this speech as a vehicle to deliver any change
in policy," said Yelena Shulyatyeva, U.S. economist with BNP
Paribas. "But we will clearly be watching closely."
The Fed bought $5.56 billion in notes due 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 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.