* Treasury to sell $35 billion two-year notes
* Investors waiting for FOMC meeting next week
* July payrolls report due next week, key for Fed
By Luciana Lopez
NEW YORK, July 23 Prices for U.S. Treasuries
fell on Tuesday ahead of a sale of $35 billion in two-year
notes, the first of $99 billion in new intermediate-dated debt
supply this week, with investors waiting for a Federal Reserve
meeting next week for key policy clues.
With little U.S. economic data on the agenda this week,
analysts said investors are watching the Treasury debt sales.
"The broader economic story is taking a back-seat to the
supply and demand dynamic - at least over the next few
sessions," said David Ader, senior government bond strategist at
CRT Capital Group in Stamford, Connecticut.
Yields have slipped this month as Fed Chairman Ben Bernanke
and other central bank officials have underscored that any plans
to slow an $85-billion-per-month asset purchase program depend
on the economic data out of the world's biggest economy.
Recently Fed officials have also emphasized that the bank
will hold benchmark interest rates at record low levels for a
long time to come, even when the bank starts to pull back on
Most economists continue to expect that the Fed will begin
to reduce its bond buys in September, according to a Reuters
poll, even though some market participants pushed back their
expectations to later in the year.
Next week's July U.S. payrolls report will be the next major
economic catalyst that is likely to give signs over the timing
of a Fed pullback. It is due for release on Friday, Aug. 2.
Policymakers want to see the unemployment rate closer to 6.5
percent than its current 7.6 percent.
More direction could also come after the Federal Open Market
Committee meets on July 30 and 31. A statement will be released
on the second day.
"The FOMC's statement needs to confirm the message Bernanke
has been repeating for the last several weeks - gradualism,
caution, slow to raise rates in 2015," said Jim Vogel, an
interest rate strategist at FTN Financial in Memphis, Tennessee.
"Any equivocation on those points will send rates higher,
possibly to 2.65 percent again as the Fed's communication
strategy would be laid bare as nearly a random series of
events," he added.
Benchmark 10-year notes traded 6/32 lower in
price to yield 2.505 percent on Tuesday, down from a two-year
high of 2.76 percent on July 8 but well up from 1.60 percent at
the beginning of May.
As part of its stimulus program, aimed at boosting
employment, the Fed on Tuesday bought $3.687 billion of
Treasuries maturing between August 2019 and June 2020.
Uncertainty over the Fed's time frame could add pressure to
this week's sales of five-year and seven-year debt. The notes
are the most sensitive to interest rate policy.
The Treasury will sell $35 billion in two-year notes on
Tuesday, $35 billion in five-year notes on Wednesday and $29
billion in seven-year notes on Thursday.