* Buying of long bonds by insurance and pension funds cited
* Market adjusts to Wednesday taper announcement
* Trade choppy in reduced liquidity pre-holiday
* Q3 U.S. growth was 4.1 percent; details suggest strength
By Ellen Freilich
NEW YORK, Dec 20 (Reuters) - Longer-dated Treasuries rose in price on Friday as yields near the upper end of their recent range drew buyers and the market adjusted to the idea that the Federal Reserve would begin to trim its bond purchases at the start of the new year.
The week’s Treasury auctions also concluded on Thursday, alleviating some downward pressure on prices.
“There was a lot of cash on the sidelines waiting for this taper uncertainty to get by us,” said Wilmer Stith, co-manager of the Wilmington Broad Market Bond Fund, referring to the Fed’s announcement this week that it would trim its purchases of Treasuries and mortgage-backed securities in January.
“The 30-year Treasury bond yield is a little below 4 percent and when you consider the very low inflation environment we have, these higher yields look historically compelling to pension funds and insurance companies who need those long duration assets,” Stith said.
Buyers are stepping in, agreed Paul Montaquila, vice president and fixed-income investment officer at Bank of the West’s capital markets division in San Francisco.
“The sentiment seems to be that rates are going higher, but gradually, not by leaps and bounds. So you will get buyers at certain levels and this seems to be one of those levels.” .
Heading into the holiday season, a lack of liquidity also contributed to some market choppiness.
Levels “are exaggerated due to liquidity supply and all that,” said David Ader, Treasury strategist at CRT Capital Group in Stamford, Connecticut. “We’re really talking about day trading. Note that Japan is out Monday for a holiday and so while we do expect buying interest from there in 2014, the next few days are a no-show.”
News that the U.S. economy grew at its fastest pace in almost two years in the third quarter had minimal market impact.
Benchmark 10-year Treasury notes rose 9/32 in price, their yields easing to 2.90 percent.
The 30-year bond price climbed 31/32, its yield easing to 3.852 percent.