January 30, 2013 / 2:15 PM / 5 years ago

TREASURIES-Prices near flat as GDP disappoints, Fed eyed

* Fed to end two-day meeting, statement eyed
    * U.S. GDP shows unexpected contraction in fourth quarter
    * Treasury to auction $29 billion of seven-year notes

    By Luciana Lopez
    NEW YORK, Jan 30 (Reuters) - Prices for U.S. Treasuries
traded near flat on Wednesday as data showed the U.S. economy
unexpectedly shrank at the end of last year, with investors
awaiting any hints about the Fed's asset-buying program as the
central bank concludes a two-day meeting.
    Gross domestic product fell at a 0.1 percent annual rate,
its first decline since the 2007-2009 recession as businesses
scaled back on restocking and government spending plunged.
    "We have a slowing in government spending associated with
the fiscal situation as well as some drawdown in military
activity," said Terry Sheehan, economic analyst with Stone &
McCarthy Research Associates in Princeton, New Jersey.
    "This report doesn't have immediate implications for Fed
policy. They will be unhappy with it, but it's one quarter's
number," Sheehan said.
    While the figure could see revisions in the months ahead,
prospects for the new few quarters look "tricky," said Rob
Carnell, an economist with ING Bank.
    "Recent Treasury yield increases and sell-offs in the back
month Fed funds futures look premature," he said. "We will find
better levels to lock in low rates in anticipation of higher
yields in the second half of the year."    
    Treasuries jumped after the data, but soon gave up those
gains as investors turned toward Wednesday's other major event:
the close of the Federal Reserve's two-day policy meeting.
    Investors will scour the bank's statement for any hints of
unease with its asset-buying program.
    Suggestions along those lines in the December meeting
minutes, released on Jan. 3, jump-started a selloff that took
yields up out of their range of recent months.
    Further hints that the Fed might end its latest round of
quantitative easing before the end of this year - or even trim
the size of that program - could see more selling.
    Ten-year notes traded 1/32 lower to yield 2.003
percent early in the New York session, from 1.9973 percent late
on Tuesday.
    Thirty-year bonds traded flat to yield 3.184
    Yields on benchmark 10-year notes have been testing the 2
percent level since Monday, breaching that figure for the first
time since April. But yields didn't get traction above that
level until Wednesday, helped by a bump in risk appetite in
Asian trading overnight.
    Investors are also awaiting nonfarm payrolls data on Friday.
The Fed wants the unemployment rate to drop closer to 6.5
percent from the current 7.8 percent.    
    In addition, the Treasury will sell $29 billion of 7-year
notes on Wednesday.
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