By Luciana Lopez
NEW YORK, Sept 18 (Reuters) - Prices for U.S. Treasuries
fell on Wednesday, with all investors focused on the end of a
two-day Federal Reserve meeting and an expected slowdown in the
bank's massive asset purchase program.
Fed policymakers are seen trimming their $85 billion per
month buying of Treasuries and mortgage-backed securities and
are due to issue a statement at 2:00 p.m. (1800 GMT).
Benchmark yields have shot up more than 100 basis points to
hover near two-year highs since the Fed began hinting at an exit
strategy in May.
But a spate of mixed U.S. economic data has underscored the
difficulty in the Fed's decision: Pare bond-buying too early and
a recovery in the world's biggest economy could suffer; take too
long and risk an asset bubble or other market distortions.
'Where we are right now, it's all on the Fed,' said Justin
Lederer, an interest rate strategist at Cantor Fitzgerald in New
Before the Fed decision in the afternoon, he said, 'volume
is going to be on the lighter side. I wouldn't be surprised if
we saw some choppiness.'
Fed Chairman Ben Bernanke will hold a news conference soon
after the statement's release, and the Fed will release fresh
quarterly economic and interest rate projections.
While analysts said expectations of Fed tapering of
quantitative easing are now built into the market, estimates
varied on the amount by which the Federal Open Market Committee
will reduce its so-called quantitative easing program.
'We expect the FOMC to announce a $10 billion reduction in
its monthly QE asset purchases at its September meeting,' said
Michael Carey, chief North America economist, of Credit Agricole
in a note to clients.
Expectations for the Fed's pullback overshadowed other
events on Wednesday, such as minutes from a Bank of England
meeting that were less dovish than expected.
Benchmark 10-year Treasury notes slipped 12/32
in price to yield 2.892 percent from 2.849 percent late on
The 30-year bond was off 21/32 in price with a
yield of 3.870 percent, from 3.831 percent late on Tuesday.
Data on the health of the U.S. economy presented a mixed bag
on Wednesday. Mortgage applications rose from a near five-year
low as interest rates dipped from a year high.
And a surge in permits for single-family homes pointed to a
strengthened recovery in the housing market.
But U.S. housing starts, nonetheless, rose less than
expected in August amid a sharp slowdown in the multifamily
Economists fret that a too swift rise in interest rates
could hurt the U.S. housing sector, with buyers nervous about
paying higher borrowing costs.
Wednesday's housing starts report 'suggests that the drag
from the recent surge in mortgage rates is continuing to play
out in the housing market, tempering the pace of construction
activity,' said Millan Mulraine, director of U.S. research and
strategy at TD Securities in New York.
(Editing by Bernadette Baum and Kenneth Barry)
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Keywords: MARKETS USA BONDS/
(-------MARKET SNAPSHOT AT 10:54 a.m. EDT (1454 GMT)------- Sept T-Bond 131-06/32 (-21/32) Sept 10-Year note 124-30/32 (-09/32) Change vs Current Nyk yield Three-month bills 0.0125 (+0.00) 0.013 Six-month bills 0.04 (unch) 0.040 Two-year note 99-31/32 (-01/32) 0.391 Five-year note 99-09/32 (-07/32) 1.654 10-year note 96-21/32 (-12/32) 2.892 30-year bond 95-22/32 (-21/32) 3.870 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 15.50 (unch) U.S. 3-year dollar swap spread 13.50 (unch) U.S. 5-year dollar swap spread 17.75 (+0.75) U.S. 10-year dollar swap spread 15.25 (+0.50) U.S. 30-year dollar swap spread -1.75 (+0.25))
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