March 14, 2017 / 3:25 PM / 3 years ago

TREASURIES-Yields dip as traders neutralize bets ahead of Fed statement

* Traders square positions ahead of expected Wed. Fed rate hike

* 30-,10-year yields hit 3-month highs overnight

* Interest rate futures imply 95.2 pct chance of rate hike- FedWatch

By Sam Forgione

NEW YORK, March 14 (Reuters) - U.S. Treasury yields edged lower on Tuesday, with those on long-dated and benchmark bonds retreating from three-month highs touched overnight as traders neutralized bets on the eve of a Federal Reserve policy decision.

While a rate increase from the Fed on Wednesday was largely anticipated, the question of whether policymakers would signal a more aggressive pace of monetary tightening remained less certain.

In overnight trading, yields touched three-month highs of 3.215 percent for 30-year Treasuries and 2.629 percent for the 10-year. They moved lower, though, as traders looked to offset recent selling of Treasuries ahead of the Fed statement by buying back U.S. government debt, a strategy known as position-squaring.

Interest rates futures implied traders saw a 95.2 percent chance the Fed would announce it was raising rates by a quarter percentage-point at the end of its two-day policy meeting, CME Group’s FedWatch program showed. Those expectations were up from 93.0 percent on Monday.

“Markets are staying relatively quiet in front of the Fed,” said Lou Brien, market strategist at DRW Trading in Chicago. He said weakness in riskier U.S. stocks also stoked demand for safe-haven U.S. Treasuries.

Fed policymakers’ projections could suggest four rate hikes this year instead of the three projected in December, said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee.

Analysts said trading volumes appeared to be thin because of a blizzard in the northeastern United States, possibly leading to exaggerated yield moves throughout the day.

Benchmark 10-year Treasury notes were last up 4/32 in price, with yields falling to 2.593 percent from 2.607 percent late on Monday.

U.S. 30-year Treasuries prices were up 9/32. Yields dipped to 3.176 percent from 3.192 percent after hitting a three-month high of 3.215 percent overnight.

U.S. two-year notes, which are considered most vulnerable to Fed policy, were last roughly flat in price to yield 1.372 percent.

Besides the Fed statement, investors were awaiting the impact of central bank meetings in Britain and Japan, a gathering of G20 finance chiefs, U.S. President Donald Trump’s first budget and the results of a tense election in the Netherlands. (Reporting by Sam Forgione; Editing by Lisa Von Ahn)

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