By Richard Leong
NEW YORK, June 17 (Reuters) - U.S. longer-dated government
debt prices fell on Monday a day before the Federal Reserve
meets for a two-day policy meeting on concerns the central bank
might be moving closer to announcing it will trim bond
purchases, though trade was volatile and volume was light.
Markets have been on edge since Fed Chairman Ben Bernanke
told a congressional hearing some three weeks ago that a
decision on whether the central bank will pare its $85 billion
monthly purchases of Treasuries and mortgage-backed securities
could occur 'in the next few meetings' if the economy showed
Such a move on the Fed's stimulus program - its third round
of quantitative easing, or QE3 - was earlier than what some
traders had thought and has whipped up fears interest rate
increases would follow soon after the Fed stops buying bonds.
The anxiety about a sooner-than-expected shift in the Fed's
policy path roiled financial markets in recent weeks, which had
been buoyed by bets the central bank would stay pat with its
ultra-loose policy stand at least through early 2015. Wall
Street stocks fell from their record peaks, while the benchmark
10-year Treasury yield rose 46 basis points in May, its biggest
one-month jump in nearly 2-1/2 years, according to Reuters data.
An article in the Financial Times on Monday advancing the
view that the Fed would taper purchases this year accelerated
selling of Treasuries as traders grew increasingly jumpy ahead
of the Fed's meeting.
'The game is changing now with a very quick unwind in the
bond market and a levered stock market,' said Howard Simons, a
strategist with Bianco Research in Chicago.
The Fed earlier on Monday bought $5.51 billion in notes due
2018 and 2019 as part of its ongoing QE3 purchases.
A Reuters poll of economists show most believe the Fed will
reduce its purchase program by the end of this year, and a
significant number see less Fed buying as early as September.
That view is not universal, however. With employment growth
still modest and inflation muted, many investors believe markets
have over-reacted to Bernanke's comments in May. A Wall Street
Journal report last week that said the Fed was unlikely to end
all its purchases at once prompted a sharp Treasuries rally.
'The market has gotten a little overdone in the sell-off,'
said Jeff Given, portfolio manager at Manulife Asset Management
The Federal Open Market Committee, the central bank's policy
setting group, will release a statement at 2 p.m. EDT (1800 GMT)
on Wednesday, followed by a press conference with Bernanke a
half hour later.
'You're going to continue to see extreme volatility around
these Fed meetings just because of what the chairman has
stated,' said Dan Mulholland, managing director in Treasuries
trading at BNY Mellon in New York.
Intraday swings in the Treasuries market before the FOMC
meeting were exacerbated by falling level of trades.
As of 2 p.m. EDT, nearly $190 billion worth of Treasuries
changed hands, 48 percent of its 20-day moving average,
according to ICAP, the world's biggest broker-dealer for U.S.
Benchmark 10-year Treasuries were 11/32 lower in
price to yield 2.171 percent, up 4.4 basis points from late on
Friday, while 30-year bonds fell 23/32 in price to
yield 3.348 percent, up 4.5 basis points from Friday's close.
Economic data showing unexpected growth in New York state
manufacturing in June while home builder sentiment improved to a
seven-year high also helped push Treasury yields higher.
(Additional reporting by Karen Brettell; Editing by Andrea
((firstname.lastname@example.org)(+1 646 303 6313)(Reuters
Keywords: MARKETS USA BONDS/
(-------MARKET SNAPSHOT AT 4:04 p.m. EDT (2004 GMT)------- Sept T-Bond 139-18/32 (-25/32) Sept 10-Year note 129-11/32 (-09/32) Change vs Current Nyk yield Three-month bills 0.045 (unch) 0.046 Six-month bills 0.075 (unch) 0.076 Two-year note 99-31/32 (+01/32) 0.266 Five-year note 99-26/32 (-03/32) 1.042 10-year note 96-09/32 (-12/32) 2.171 30-year bond 91-06/32 (-23/32) 3.343 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 15.50 (unch) U.S. 3-year dollar swap spread 15.50 (-0.25) U.S. 5-year dollar swap spread 18.75 (-0.25) U.S. 10-year dollar swap spread 17.25 (-0.25) U.S. 30-year dollar swap spread -11.25 (-0.25))
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