TREASURIES-Curve steepens as Fed seen likely to hold rates low

Reuters

* 10-yr, 30-yr yields rise as Fed seen likely to taper

* Shorter-dated debt rallies as rates seen likely to stay

low

* Traders betting on curve flattening hit stop loss triggers

By Karen Brettell

NEW YORK, Nov 20 (Reuters) - Long-dated U.S. Treasuries

yields rose to two-month highs on Wednesday, but shorter-dated

yields fell after the Federal Reserve minutes showed the U.S.

central bank is likely to hold interest rates at record lows for

several years, even after it ends its bond purchases.

Benchmark 10-year notes and 30-year bonds accelerated losses

after the Fed minutes from October's meeting said bond purchases

could start to slow at one of its next few meetings if the

economy improved enough to warrant it.

The yields had increased earlier on Wednesday after St.

Louis Fed President James Bullard told Bloomberg TV that a solid

U.S. jobs report for November would increase the likelihood that

the Federal Reserve would start to scale back bond buying at its

meeting next month.

Short- and intermediate-dated debt rallied, however, sending

the yield gap between 5-year notes and 30-year bonds wider as

traders increased bets that the Fed will hold rates at record

lows until 2016, or later.

"The feeling is that they are definitely trying to guide the

market to believing that tapering doesn't necessarily represent

a rate hike," said Sean Murphy, a Treasuries trader at Societe

Generale in New York.

Ten-year notes were last down 20/32 in price to

yield 2.78 percent, up from 2.71 percent late on Tuesday.

Thirty-year bonds fell 1-21/32 in price to yield

3.90 percent, up from 2.80 percent on Tuesday.

Five-year notes gained 2/32 in price to yield

1.34 percent, down from 1.36 percent.

A number of trades that had been placed to benefit from a

flattening yield curve also hit stop loss triggers as the curve

steepened, adding to the selloff of long-dated Treasuries,

traders said.

At its policy meeting, the central bank voted to keep buying

bonds at an $85 billion monthly pace, delaying a decision to

start scaling back the program until it saw more evidence of a

durable recovery that could sustain job creation.

Economists surveyed by Reuters believe the Fed will begin

reducing its monthly bond purchases in March 2014 - with a small

chance of doing so in January - but with an accompanying

commitment to keep interest rates at record lows, a poll showed

Wednesday.

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