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TREASURIES-U.S. bond prices fall as Bernanke shows optimism on growth
January 3, 2014 / 10:06 PM / 4 years ago

TREASURIES-U.S. bond prices fall as Bernanke shows optimism on growth

* Fed's Bernanke express cautious optimism on U.S. economy
    * Fed's Lacker's rate-hike remarks push up short-dated
yields
    * Benchmark yields hold near 3 percent in light volume
    * Supply, FOMC minutes, payrolls data in focus next week


    By Richard Leong and Karen Brettell
    NEW YORK, Jan 3 (Reuters) - U.S. Treasuries prices fell on
Friday with benchmark yields ending at 3 percent after Federal
Reserve Chairman Ben Bernanke gave an upbeat outlook on the U.S.
economy, supporting the view the Fed will continue to scale back
its bond purchases in 2014.
    Bernanke, who will leave as the head of the U.S. central
bank at month's end after seven years, also cautioned at an
event in Philadelphia the overall economic recovery since the
Great Recession "clearly remains incomplete." 
    Bernanke's comments knocked longer-dated Treasuries prices
from their session highs as investors prepared for a busy week
when the U.S. Treasury Department will sell $64 billion in
coupon-bearing supply and the Fed will release the minutes of
its Dec. 17-18 policy meeting where it decided to start paring
back its third round of quantitative easing in January.
    Investors also await December U.S. payrolls data to help
them determine whether domestic job growth is strong enough for
the Fed to further dial back its QE3 bond purchases.
    Analysts downplayed the moves in the Treasuries market in
the first two trading days of 2014. The market had just suffered
its third worst year in four decades. The market has been
rudderless due to light trading volume stemming from a holiday
in Japan and a winter storm in the northeastern United States.
[ID: nL2N0KD0P3]
    "We don't have people putting on big positions yet. But the
trend is clear that yields are rising. It's hard to make an
exceptional case for Treasuries," said David Keeble, global head
of interest rates strategy at Credit Agricole Corporate &
Investment Bank in New York.
    Bond prices also gave up their earlier modest gains in late
trading after Richmond Federal Reserve President Jeffrey Lacker
told an event in Baltimore he expects the Fed might raise
short-term interest rates from zero in early 2015 and perhaps
sooner if the economy strengthens more than forecast this year.
 
    The consensus on Wall Street has been the Fed would not hike
rates until late 2015. 
    Lacker's rate-hike remarks spurred some selling in the
two-and three-year sector since it is most vulnerable to an
earlier-than-expected rate increase.
    Yields on two- and three-year Treasuries rose 2 basis points
to 0.400 percent and 3 basis points to 0.779 percent,
respectively .
    Longer-dated maturities fared slightly better. 
    Benchmark 10-year Treasuries notes fell 4/32 in
price to yield 3.000 percent, up 1.5 basis points from late
Thursday, while the 30-year bond slipped 4/32 in
price to yield 3.928 percent, up 1.2 basis points from Thursday.
    The 10-year yield hit a near 2-1/2-year high of 3.041
percent on Thursday, according to Reuters data.
    
    FED MINUTES, SUPPLY, PAYROLLS
    The Fed meeting minutes for December, slated for release
next Wednesday, will next take focus for signs over how far the
Fed may further pare back its bond purchases.
    The U.S. central bank said last month it would cut its
mortgage-backed securities and Treasuries purchases by $10
billion to $75 billion a month. 
    The Fed will resume its Treasuries buying on Monday, with
scheduled $1 billion and $1.50 billion purchases in bonds due in
2036 and 2043.
    As the central bank buys more debt, the Treasury Department
will sell $30 billion in three-year debt on Tuesday
 ; $21 billion in 10-year notes on Wednesday
 and $13 billion in 30-year bonds on Thursday
.
    Next week's key factors will culminate on Friday with the
December payrolls report, which economists polled by Reuters
expected will likely show U.S. employers added 197,000 jobs last
month and the jobless rate held at a five-year low of 7.0
percent.
    Some traders see Treasuries as likely to become more
volatile as investors adjust to the change in leadership at the
Fed, and to the reduction in the bond purchase program.
    The U.S. Senate has set a Monday vote on President Barack
Obama's choice of Janet Yellen to replace Bernanke. Yellen is
the current Fed Vice Chair, the Fed's second most powerful
position.

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