TREASURIES-Prices gain, Fed meeting next week in focus

Reuters

* Prices rise, Fed seen unlikely to taper before 2014

* Fed policymakers to meet Tuesday, Wednesday

* Treasury to sell $96 bln in 2, 5, 7-yr debt next week

By Karen Brettell

NEW YORK, Oct 25 (Reuters) - U.S. Treasuries prices rose on

Friday as investors waited for new signs about the economy's

strength, which could influence the timing of the Federal

Reserve's initial reduction of its bond-buying stimulus.

Treasuries have been largely rangebound 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 in October.

A backlog of releases are now scheduled as the government

catches up on issuing data. The Fed is viewed as unlikely to

change it purchase program from $85 billion a month when it

holds its policy meeting next week, with most seeing the central

bank likely to maintain the same rate of purchases until next

March.

"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 5/32 in

price to yield 2.50 percent. The yields have fallen from 3.00

percent on Sept. 5, 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

government spending.

U.S. consumer sentiment also 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 released on Friday showed.

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 new signs from the Fed that it is taking a

more cautious stance on the economy.

"There's a lot of dovishness in the market already," said

Richard Gilhooly, an interest rate strategist at TD Securities

in New York.

"In order for us to rally and extend the range to lower

yields you either 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," he said.

The Treasury will also 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.

View Comments (1)