* U.S. to sell $30 billion in new three-year notes
* Fed to buy up to $1.50 billion TIPS for QE3
By Richard Leong
NEW YORK, Dec 10 U.S. Treasuries prices rose on
Tuesday as investors bought to exit bearish bets in advance of a
$30 billion auction of three-year government notes, part of this
week's $64 billion in coupon-bearing government debt supply.
Bond yields retreated further from their three-month highs
as traders reconsidered whether the Federal Reserve would shrink
its third round of quantitative easing at its two-day policy
meeting next week in the wake of an upbeat November payrolls
report and other encouraging economic data.
Even if the Fed were to signal a pullback in bond purchases,
policy-makers will likely opt for a small one in order to not
trigger a bond market sell-off, which would send long-term
interest rates higher and hurting the housing market.
"We might see a gradual tapering. The Fed won't let rates go
much higher," said Larry Milstein, head of government and agency
trading at R.W. Pressprich & Co. in New York.
At 11 a.m. (1600 GMT), the U.S. central bank will buy $1.00
billion to $1.50 billion of Treasuries Inflation Protected
Securities, part of its intended $45 billion in government debt
purchases in December.
The Treasury Department will replenish the market with the
sale of $30 billion in three-year government notes at 1 p.m.
It will hold a $21 billion reopening of 10-year notes
on Wednesday and a $13 billion auction of a
prior 30-year bond issue on Thursday.
In the when-issued market, traders expected the new
three-year note to sell at a yield of 0.637
percent, compared with 0.644 percent yield on the three-year
notes sold in November.
On the open market, the benchmark 10-year note
last traded 12/32 higher in price with a yield of 2.812 percent,
down 4.5 basis points from late on Monday.
The 10-year yield climbed to 2.932 percent on Friday, which
was the highest since Sept. 11, in a reaction to a
stronger-than-forecast jobs report for November.
"The market has fully priced in a tapering. A 2.90 percent
yield might be an overshoot," said John Herrmann, director of
interest rates strategy with Mitsubishi UFJ Securities USA in
The 30-year Treasury bond was last up 23/32 in
price after rising more than 1 point earlier. The 30-year yield
fell 4 basis points to 3.848 percent after hitting 3.980 percent