By Karen Brettell and Richard Leong
NEW YORK, Oct 25 (Reuters) - U.S. Treasury debt prices rose
on Friday with benchmark yields hovering near three-month lows,
as investors shifted their focus to the Federal Reserve meeting
next week, where it might signal it will stick to the current
size of its bond-purchase stimulus.
The bond market has traded in a tight range since Tuesday
when yields fell on data that showed employers hired fewer
workers than expected in September, stoking fears the economy
was slowing even before the government's 16-day shutdown that
ended last week.
The 10-year note yield was on track to fall for
a second straight week, though it has struggled to decline much
below the chart resistance of 2.50 percent.
'We are moving sideways. The market is expecting Fed's bond
purchases will continue into 2014. There's nothing in the near
term that will change this view,' said Brian Rehling, chief
fixed income strategist at Wells Fargo Advisors in St. Louis.
The government is catching up on issuing a backlog of data,
which have largely supported the notion the U.S. central bank
needs to stick to its current level of bond-purchase stimulus,
or QE3, to support an economic recovery that has slowed since
Economists expect Fed policymakers will decide to maintain
their $85 billion monthly purchases of Treasuries and
mortgage-backed securities when they meet next Tuesday and
Wednesday. They projected the Fed would keep this pace of buying
'The market continues to do better here in an environment
where the Fed is not tapering quantitative easing until sometime
in 2014,' said Gary Pollack, head of fixed income trading at
Deutsche Bank Private Wealth Management in New York.
Benchmark 10-year notes were last up 4/32 in
price to yield 2.507 percent, down 1 basis points from late on
Thursday and 8 basis points from a week earlier.
The 10-year yield has fallen from 3 percent on Sept. 5,
about two weeks before the Fed surprised investors by leaving
its bond purchase program unchanged.
The effects of the government shutdown and wrangling over
raising the debt ceiling are expected to linger for several
months, muddying insight into the economy.
'The economy looks a little disappointing and we're not
going to get a clear picture of what the economy is doing until
we get figures for the month of December, which come out in
January,' Pollack said.
New orders for long-lasting U.S. manufactured goods outside
of transportation equipment fell in September in a possible sign
companies were holding back investments due to uncertainty over
U.S. consumer sentiment dropped in October to its lowest
level since the end of last year as consumers worried that
congressional dysfunction and the partial government shutdown
would hurt growth, a survey showed on Friday.
After the rally that has sent 10-year yields down by half a
percentage point in two months, further yield declines will
depend on data or on new signs from the Fed that it is taking a
more cautious stance on the economy.
'In order for us to rally and extend the range to lower
yields you either need something even more dovish coming out of
the Fed next Wednesday, or you need to have a significant
weakening in the economic data, which we haven't seen,' said
Richard Gilhooly, an interest rate strategist at TD Securities
in New York.
The perception the Fed will continue with its current level
of stimulus has been stoked by the White House's decision to
nominate Fed Vice Chair Janet Yellen to succeed Ben Bernanke to
head the central bank.
Yellen has expressed views similar to Bernanke's and is seen
as an architect behind the Fed's quantitative easing programs.
The White House said on Friday its paperwork for Yellen's
nomination was submitted to the Senate following a report from
CNBC television which cited a source close to Senator Rand Paul
reported the Kentucky Republican plans to put a 'hold' on her
The CNBC report on Paul's possible move was shrugged off by
investors. Some of them have attributed the recent decline in
bond yields to likelihood Yellen will head the Fed next year.
In addition to watching to what the Fed will signal next
week, traders will contend with new Treasuries supply.
The Treasury Department will sell $96 billion in new
coupon-bearing supply next week, including $32 billion in
two-year notes on Monday, $35 billion in five-year notes on
Tuesday and $29 billion in seven-year notes on Wednesday.
(Editing by Chizu Nomiyama, Kenneth Barry and Nick Zieminski)
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Keywords: MARKETS USA BONDS/
(-------MARKET SNAPSHOT AT 2:51 p.m. EDT (1851 GMT)------- Dec T-Bond 135-09/32 (+07/32) Dec 10-Year note 127-19/32 (+06/32) Change vs Current Nyk yield Three-month bills 0.035 (unch) 0.036 Six-month bills 0.075 (unch) 0.076 Two-year note 99-29/32 0.307 Five-year note 100-15/32 (+04/32) 1.280 10-year note 99-31/32 (+05/32) 2.505 30-year bond 100-18/32 (+11/32) 3.595 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 12.75 (-0.25) U.S. 3-year dollar swap spread 11.75 (-0.50) U.S. 5-year dollar swap spread 15.25 (unch) U.S. 10-year dollar swap spread 14.75 (-0.25) U.S. 30-year dollar swap spread -3.25 (+0.25))
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