January 10, 2013 / 9:40 PM / in 5 years

TREASURIES-Prices fall on ECB talk, but debt sale tempers losses

* High yield in 30-year bond auction below expectations
    * Fed buys $3.16 bln in notes due 2020-22
    * Risk-taking in Europe, stocks gains dampen Treasuries

    By Karen Brettell and Luciana Lopez
    NEW YORK, Jan 10 (Reuters) - Prices for U.S. Treasuries slid
on Thursday as signs of life in the euro zone economy renewed
recent bearishness, but a strong 30-year bond sale tempered
    While holding interest rates at a record low, the European
Central Bank on Thursday said the monetary union's economy will
recover later in 2013 and that there are already some signs of
    The ECB "brought a great bit of selling and renewed bear
steepening into the market through all the morning, and that was
the guiding thought," said Jim Vogel, interest rate strategist
at FTN Financial in Memphis, Tennessee.
    Softening losses, a $13 billion auction of 30-year bonds
fetched a high yield of 3.070 percent, lower than markets had
    "While there was not any one extremely strong auction
statistic, we had above-average numbers across the board worthy
of a B-plus," said George Goncalves, head of rates strategy in
the Americas for Nomura Securities.
    "Overall, this was a solid auction and shows that there is
life after (the Fed's Operation) Twist given that QE4 is still
supportive of bonds," he added.
    The central bank's "Operation Twist" stimulus program, under
which it sold shorter-dated Treasuries and bought longer-dated
debt, expired at the end of 2012.  
    The Fed is now buying about $40 billion per month of
mortgage-backed securities and $45 billion per month of
longer-dated Treasuries in an effort to prop up the economy.
Some analysts have dubbed the Fed purchase programs "QE4." 
    Benchmark 10-year Treasury notes were last down
11/32 in price to yield 1.899 percent, up from 1.86 percent late
on Wednesday.
    Thirty-year bonds fell 12/32 in price to yield
3.081 percent, up from 3.06 percent on Wednesday. Those prices
pared losses sharply after the auction and even briefly turned
    Yields are trading near eight-month highs after minutes
released last week from the Federal Reserve's December meeting
sparked speculation that the U.S. central bank may end its bond
purchase program before year-end, sooner than most expected.
    "When the minutes came out it put doubt in people's minds
about the duration on bond purchases. All of a sudden people
started to think that maybe it's not going to happen through the
balance of this year," said Tom Tucci, head of Treasuries
trading at CIBC in New York.
    Investors will now be closely watching a speech that Fed
Chairman Ben Bernanke is due to give on Monday at the University
of Michigan for any further indications of how long the Fed's
latest bond purchase program will last.
    Much, however, is likely to depend on the economy, as
Bernanke has said he wants to continue stimulus until the
economy is on surer footing and unemployment drops
    "The real crisis we are faced with is getting our economy to
grow at a rate that creates jobs," said David Coard, head of
fixed income sales and trading at The Williams Capital Group in
New York.
    The resolution of the so-called "fiscal cliff" has also
dampened the safety bid for U.S. debt since the beginning of the
    But bigger battles scheduled for the weeks ahead on how to
cut spending and reduce the deficit may bring buyers back to the
    "We still have the spending debate, that could become
increasingly tricky. I've got to believe that with that looming
out there, it's hard to really feel comfortable about ranges,"
said Coard.
    The Fed bought $3.16 billion in notes due from 2020 and 2022
on Thursday as part of its bond purchase program, which is
designed to reduce borrowing rates and spur hiring.
    In addition, the U.S. high-grade market set a weekly volume
record on Thursday, despite indications that investors and
issuers alike are growing increasingly anxious about the months
    The week's investment-grade volume hit $41.61 billion,
topping the previous best of $40.642 billion, Thomson Reuters
publication IFR reported.
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