February 8, 2013 / 9:35 PM / 5 years ago

TREASURIES-Prices near flat before $72 billion of new supply

* Prices end nearly flat as positions squared before weekend
    * Stock gains weighed on bond prices earlier in session
    * Volume thins as snowstorm hits U.S. East Coast
    * Treasury to sell $72 billion in three-, 10- and 30-year
    * Fed bought $1.37 billion in TIPS due 2029-42

    By Ellen Freilich
    NEW YORK, Feb 8 (Reuters) - U.S. Treasuries ended near flat
on Friday after dipping during the session when stocks resumed
their climb and traders got ready for $72 billion in new
government debt supply next week.
    Treasuries erased those losses in mid-afternoon, however,
when many traders squared positions before heading home as a
blizzard moved into the northeastern United States.
    For the week, Treasuries ended higher, their yields lower.
    The Treasury will sell $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.
    Stronger-than-expected December U.S. trade data helped fuel
the gain in stocks and for most of the day reduced demand for
safe-haven bonds. The trade data prompted Goldman Sachs
economists to raise their GDP tracking estimate for the first
quarter by 0.2 percentage point to 2.8 percent.
    "Stocks and bonds have returned more to a risk-on, risk-off
relationship," said Jake Lowery, portfolio manager on the global
rates team at ING Investment Management in Atlanta, with $182
billion in assets under management.
    "The S&P approached 1500 intraday earlier this week and
10-year Treasuries approached 1.93 (percent yield)," he
observed. "Both of those technical levels held in and that
remained the 'risk-off' low for equities and bond yields for the
week," he said.
    Rick Klingman, a Treasuries trader at BNP Paribas in New
York, said the smaller December U.S. trade deficit implied "a
decent upward revision" to fourth-quarter GDP, a development
that helped stocks and restrained bonds.
    A rise in exports and lower oil imports helped push the U.S.
trade deficit to its narrowest in nearly three years in
December, data showed on Friday. 
    A little selling before next week's supply also weighed on
U.S. Treasuries for much of the day, but that pressure also
dissipated by mid-afternoon as northeast-based traders headed
home before the worst of the blizzard hit.
    Benchmark 10-year Treasuries rose just 1/32 in
price, leaving their yields at 1.96 percent.
    The note's yield was as low as 1.93 percent on Thursday
after comments from European Central Bank President Mario Draghi
raised speculation that the bank would cut interest rates to
stem the region's strengthening currency. 
    Ten-year Treasuries are now trading in the middle of what
traders see as a range between around 1.90 and 2.04 percent.
    "We think we are going to trade in this range for the next
few weeks," said Mary Beth Fisher, head of U.S. interest rate
strategy at Societe Generale in New York. "It's going to take
materially better data to get us above 2.04 percent. (The yield)
 seems to be a range where there is a lot of price support."
    A dramatic selloff in late January and early February pushed
the 10-year notes to more than eight-month highs of 2.06 percent
on Feb. 4. The yield did not stay there for long, however.
    "After printing a fresh 43-week high overnight this past
Monday, the yield on the benchmark 10-year note reversed lower
to close the five-day period in negative territory for the first
time in three weeks," said John Canavan, market analyst at Stone
& McCarthy in Princeton, New Jersey.
    "The majority of the week's gains occurred on Monday after
Spanish Prime Minister Rajoy became embroiled in a financial
scandal, and former Italian Prime Minister Berlusconi began to
climb in the polls before the upcoming Italian elections," he
noted. "The ensuing selloff in European peripheral debt markets
offered Treasuries a better safe-haven bid."
    That bid occurred in a market that was already technically
oversold and primed for a "corrective bounce" after 3.25 percent
held as a top for the 30-year bond yield, Canavan said.
    "The market reversed in Europe on Tuesday as peripheral
markets there steadied, and European Services PMI figures proved
generally better than expected," he said.
    The "see-saw" price action continued throughout the week in
response to "off-and-on safe-haven demand" related to concerns
about the Spanish and Italian political situations and some
early positioning ahead of the Refunding auctions, Canavan said.
    Players are grinding out new ranges after the recent
selloff, he said.
    The Federal Reserve bought $1.37 billion in Treasury
Inflation-Protected Securities (TIPS) due between 2029 and 2042
on Friday as part of its ongoing bond purchase program.

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