February 11, 2013 / 7:36 PM / 5 years ago

TREASURIES-Prices edge up ahead of new U.S. debt supply

* Treasury to sell $72 billion in three-, 10-, 30-year bonds
    * Fed buys $1.45 bln in bonds due 2036-2042
    * Focus on sequester ahead of Tuesday's State of the Union

    By Karen Brettell
    NEW YORK, Feb 11 (Reuters) - U.S. Treasuries edged slightly
higher on Monday before new Treasury supply this week and a day
ahead of President Barack Obama's State of the Union address,
which will be watched for any indications of a deal to avert
spending cuts.
    The Treasury will sell $72 billion in new debt this week,
including $32 billion in three-year notes on Tuesday, $24
billion in 10-year notes on Wednesday and $16 billion in 30-year
bonds on Thursday.
    While the new supply this week may begin to weigh on prices,
large buybacks by the Federal Reserve are expected to temper
    "The market needs to digest the supply that is coming this
week," said Sean Simko, portfolio manager at SEI Investments in
Oaks, Pennsylvania.
    But analysts said markets will likely stay rangebound.
    "The big picture hasn't changed, there are still the ongoing
issues of slow growth and uncertainty," said Simko. "Until we
really start seeing headlines that are changing the bigger
picture we're going to stay in this range."
    Benchmark 10-year Treasuries were up 1/32 to
yield 1.948 percent. The notes are seen trading in a range from
around 1.90 percent to 2.04 percent.
    The Fed bought $1.45 billion in long-dated debt due from
2036 to 2042 on Monday and plans further long-dated purchases
this week as well as buybacks in the 10-year sector and
five-year sector.
    Attention is also expected to focus on Obama's State of the
Union address on Tuesday, which will be watched for any signs
that lawmakers are likely to reach a deal to avert automatic
spending cuts due to take effect on March 1.
    The White House said on Friday that government spending cuts
would have harsh consequences for ordinary Americans and the
U.S. economy. 
    "We're several weeks away from the soft date of the
sequester so people will be looking to see if any progress is
made," said Jason Rogan, managing director in Treasuries trading
at Guggenheim Partners in New York.
    "As we get closer to March, I think it will help to move the
market one way or another with the rhetoric coming out of
Washington," he added.
    Trading volumes were weaker overnight on Monday as China and
Japan both closed markets for national holidays.
    Remarks on Monday by the Federal Reserve's vice chairman,
Janet Yellen, were seen as an attempt to rein in expectations of
higher rates in coming months.
    Yellen said the Fed's aggressive and ongoing easing of
monetary policy is warranted given the still-battered state of
the U.S. labor market.
    "Ms. Yellen appears to be painting the ugliest possible
picture on the road to recovery and attempting to soften market
expectations over the need to push yields higher," said Andrew
Wilkinson, chief economic strategist at Miller Tabak & Co. LLC.
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