July 26, 2013 / 3:36 PM / 4 years ago

TREASURIES-Prices near flat as Fed, payrolls loom

* Analysts say Fed could address tapering next week
    * Nonfarm payrolls for July could clarify labor market

    By Luciana Lopez
    NEW YORK, July 26 (Reuters) - Prices for U.S. Treasuries
rose slightly on Friday, with investors reluctant to take on
large positions ahead of major events next week that could give
direction on when the Federal Reserve might slow its massive
asset-buying program.    
    "I just think they're waiting for more clues about what's
going to happen. A lot of people want to know, is tapering going
to start in September," said Dimitri Delis, interest-rate
strategist at BMO Capital Markets in Chicago.
    But he cautioned that the Fed's decision will depend on
incoming economic data.
    "I think if you start getting some weaker numbers, you might
see some of these expectations being scaled back," Delis said.
    The benchmark 10-year note rose 3/32 in price on
Friday to yield 2.568 percent, from 2.577 percent late on
    The 30-year bond gained 7/32 in price on Friday
to yield 3.634 percent, from 3.646 percent late on Thursday.    
    Yields for both 10- and 30-year Treasuries rose for the
week, retaking most of the ground lost in the previous week.
    With little economic data or news to spur yields to new
highs or lows this week, many investors have sat on the
sidelines, waiting for information on the biggest question in
Treasuries at the moment: When will the Fed pause its $85
billion per month buying in Treasuries and mortgage-backed
    Fed officials, including Chairman Ben Bernanke, have hinted
that the U.S. central bank is looking at pulling back the
purchases as the economy improves.
    As a result, yields have risen more or less steadily since
May, even as Fed speakers have hastened to reassure markets that
a slowing in the so-called quantitative easing purchase program
does not mean the Fed will hike benchmark rates any time soon.
    The Fed holds a policy meeting next week, with a statement
set for the second and final day, Wednesday.
    Depending on what the Fed says, bearish trendlines, in place
since around early May, could get broken, said William
O'Donnell, head Treasury strategist with RBS Securities in
Stamford, Connecticut.
    "If the trendlines are broken, that would turn my
medium-term price momentum bullish," he said. "I think if those
trends break, 2.25 (percent yield on the 10-year note) is a
    As part of that ongoing stimulus program, the Fed on Friday
bought $1.464 billion of Treasuries maturing between February
2036 and November 2042. 
    A major factor in Fed policy decisions will be the health of
the U.S. labor market. Nonfarm payrolls figures for July, due
next Friday, could help investors gauge whether the jobs market
is strengthening enough for the Fed to wean the economy off QE.
    Policymakers want to see the unemployment rate closer to 6.5
percent than its current 7.6 percent.
    While the nonfarm payrolls data could move markets, the Fed
"has been at pains to stress that it will be very careful in
withdrawing its accommodation, so even if the gain in payrolls
is more than anticipated, markets are unlikely to conclude that
there will be a sudden radical shift in policy," wrote Jessica
Hinds of Capital Economics to clients. 
    "This should help to prevent a renewed surge in bond
yields," she added.
    In addition, U.S. consumer sentiment rose in July to its
highest in six years as Americans felt better about the current
economic climate, though they expected to see a slower rate of
growth in the year ahead, a survey showed.
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