* Bond prices edge higher
* Results of 3-year debt auction weak
* Investors eye FOMC meeting
By Sam Forgione
NEW YORK, March 11 U.S. Treasuries prices edged
higher on Tuesday, with concern about geopolitical tensions in
Russia and Ukraine and weakness in China's economy spurring some
demand for safe-haven bonds.
With diplomacy at a standstill in Ukraine, the acting
president announced formation of a volunteer national guard,
while ousted leader Viktor Yanukovich insisted he remained the
"If you get a little bit of non-resolution on Ukraine, you
start to protect yourself," said Jim Vogel, an interest rate
strategist at FTN Financial in Memphis, on the modest demand for
Traders also mulled recent data showing China's exports
unexpectedly tumbled 18 percent year-on-year in February,
swinging the trade balance into deficit and adding to fears of a
slowdown in the world's No. 2 economy.
While inching higher, benchmark Treasuries prices remained
relatively low after last week's drop in prices. A calming of
geopolitical tensions and stronger-than-expected U.S. jobs data
pushed the benchmark 10-year Treasury yield up 18 basis points
to 2.79 percent last week.
The 10-year yield hit 2.82 percent on Friday, its highest
level in six weeks. Bond yields move inversely to their prices.
Traders said prices remained low ahead of this week's new
debt auctions, which are still expected to attract buyers
despite modestly disappointing demand at the Treasury's $30
billion auction of three-year notes on Tuesday.
The three-year Treasury notes were sold at a high yield of
0.802 percent, which was slightly higher than expected, while
outside buyers such as institutional investors bought less than
half of the new supply. Both of those factors indicated sagging
demand for the debt.
The Treasury will sell $21 billion in 10-year notes on
Wednesday and $13 billion in 30-year bonds on Thursday, or $64
billion in total new supply for the week.
Traders also said prices remained low ahead of the U.S.
Federal Reserve's policy meeting next week. Some investors
expect the Fed to hint at raising short-term interest rates and
cutting asset purchases further. Traders said those moves could
hurt benchmark bond prices.
"There's some risk down the road about high rates and a
perception of Fed tightening seeping into the markets," said
Bulent Baygun, head of US interest rates strategy at BNP
The 10-year U.S. Treasury note last traded up
4/32 in price to yield 2.768 percent, up slightly in price from
late Monday, when the yield was at 2.784 percent.
The slight rise in benchmark Treasuries prices in afternoon
trading occurred after prices edged lower following the release
of Commerce Department data showing U.S. wholesale inventories
rose more than expected in January, though sales posted their
largest decline in nearly five years.
The rise in wholesale inventories could hint at stronger
U.S. gross domestic product growth for the first quarter, said
Vishal Khanduja, fixed income portfolio manager at Calvert
Investments in Bethesda, Maryland.
Khanduja said the 10-year Treasury yield would likely stay
within a range of 2.70-2.80 percent this week.
The U.S. Federal Reserve bought $1.15 billion in Treasuries
maturing between Feb. 2036 and Aug. 2043 on Tuesday, which had a
muted impact on Treasuries prices.
The 30-year U.S. Treasury bond last traded up
11/32 in price to yield 3.708 percent.
The three major Wall Street stock indexes fell, with the
benchmark Standard & Poor's 500 stock index last trading
down 0.53 percent.