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Treasuries pare losses amid speculation of Fed tapering pace

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(Bloomberg) — Treasuries pared losses as investors speculated whether the U.S. economic recovery is strong enough for the Federal Reserve to accelerate reductions to the central bank’s debt-purchase program.

Yields had climbed for the first time in three days, snapping the longest run of weekly gains since September, before a report this week forecast to show manufacturing climbed in January. The Fed has cut its monthly debt purchases to $75 billion from $85 billion this month and holds a policy meeting Jan. 29-30.

“Buying into these yield levels is not compelling with big fundamental change on the horizon and the FOMC meeting coming up,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which oversees $11 billion in fixed income assets. “A reduction in purchases is still baked into the cake, and we won’t have any big data between now and the FOMC meeting to change the market’s outlook.”

Ten-year note yields were little changed at 2.83 percent at 10:24 a.m. New York time, after dropping to 2.82 percent on Jan. 17, the lowest since Dec. 11, Bloomberg Bond Trader data show. The 2.75 percent note due November 2023 fell 1/32, or 31 cents per $1,000 face amount, to 99 11/32.

U.S. financial markets were shut yesterday for Martin Luther King Jr. Day.

Bond returns

U.S. government securities have returned 1 percent this month, set for the biggest gain since April after a 1.5 percent loss during the last two months of 2013, according to the Bloomberg U.S. Treasury Bond Index.

“Daily momentum is still bullish,” William O’Donnell, head U.S. government bond strategist at RBS Securities Inc. in Stamford, Connecticut, wrote in a note to clients, citing technical analysis. “A daily close below 2.80 percent in 10’s is the signal I’ll be looking for to guide me to the lower rate range.”

Treasuries declined earlier as an article in the Wall Street Journal suggested the central bank is set to cut back its monthly bond buying to $65 billion, from $75 billion when policy makers meet late this month. The Fed will probably taper asset buying in $10 billion increments during the next seven meetings before ending them in December, according to a Dec. 19 Bloomberg News survey of economists.

“It’s a reiteration of the thought the Fed is poised for more tapering,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. The 10-year note yield will trade between 2.79 and 2.93 percent during the next couple of weeks, he said.


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