By Ellen Freilich
NEW YORK, Dec 9 (Reuters) - U.S. Treasuries prices rose on
Monday, aided by two sets of Federal Reserve bond purchases,
and then conceded most of those gains as traders focused on
The Fed bought $1.48 billion in bonds due 2038 and 2043 and
$3.18 billion in Treasury coupons due 2021 to 2023.
Once those Fed operations were complete, the market focused
on the $64 billion in three-, 10- and 30-year supply coming this
week and more supply coming after that.
'We had two buybacks today and then the market retreated due
to the long-end supply coming on Wednesday and Thursday,' said
Thomas di Galoma, co-head of fixed income rates at ED&F Man
Capital in New York. 'Repricing is the story of the day. We have
a ton of supply coming over the next eight trading days.'
Comments from Fed officials were 'mixed,' said CRT Capital
Group government bond strategist Ian Lyngen, calling the day's
trade 'a sideways grind' that left the market little changed.
The market is also focused on the Fed's next policy meeting
on Dec. 17-18, looking for hints as to when the central bank
could start to trim its large-scale bond purchases as well as
for signals on possible 'forward guidance' from the Fed on what
thresholds for unemployment - or even inflation - it would want
to see before starting to hike short-term interest rates.
'The Fed will likely pair a tapering announcement with some
more dovish commentary with regard to forward guidance on
interest rates,' said Gene Tannuzzo, fixed income portfolio
manager at Columbia Management.
The steepness of the Treasury yield curve shows the Fed has
already successfully separated the eventual curbing of its bond
purchases from the act of boosting short-term rates, he said.
'Short-term rates remain low even though the market knows
that in the not-too-distant future, the Fed will no longer be
the primary buyer of Treasuries,' Tannuzzo said. 'That's why the
curve is as steep as it is.
'We think 2.65 percent to 2.90 percent is fair value for
10-year Treasury yields,' he added.
The Federal Reserve will begin reducing its massive
bond-buying program no later than March, according to a Reuters
poll of 18 of the 21 primary dealers conducted Friday.
The benchmark 10-year Treasury was up 9/32 in
price late on Monday, yielding 2.85 percent.
'We're meaningfully higher in interest rates than we were
six months ago so in the market's view, the Fed has already
tapered,' Tannuzzo said.
That means the next popular trade could be 5s to 30s curve
'The belly of the curve remains extremely vulnerable,' said
Rajiv Setia, head of U.S. rates research at Barclays Global
Outlook media briefing in New York on Monday. 'Our favorite
trade is belly-to-long-end flatteners.'
Setia said he expected 10-year Treasuries to yield 3 percent
and 30-year Treasuries to yield 4 percent at mid-2014.
In the very near term, with supply the main diversion before
the Fed's policy meeting next week, benchmark 10-year yields
should remain range-bound between 2.75 percent and 2.90 percent,
The Treasury will sell $30 billion in three-year notes on
Tuesday, $21 billion in a 10-year reopening on Wednesday and $13
billion in a 30-year reopening on Thursday.
Retail sales data on Thursday will also be watched for signs
of strength in consumer spending.
(Editing by James Dalgleish)
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Keywords: MARKETS USA BONDS/
(-------MARKET SNAPSHOT AT 4 p.m . EDT (2100 GMT)------- Change vs Current Nyk yield Three-month bills US3MT=RR 0.06 (unch) 0.061 Six-month bills US6MT=RR 0.095 (-0.005) 0.096 Two-year note US2YT=RR 99-29/32 (unch) 0.302 Five-year note US5YT=RR 98-27/32 (-01/32) 1.492 10-year note US10YT=RR 99-04/32 (+02/32) 2.852 30-year bond US30YT=RR 97-26/32 (+08/32) 3.875 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 9.50 (+0.25) U.S. 3-year dollar swap spread 10.50 (-0.25) U.S. 5-year dollar swap spread 7.75 (-0.50) U.S. 10-year dollar swap spread 5.75 (-0.50) U.S. 30-year dollar swap spread -9.50 (-1.00))
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