TREASURIES-U.S. bond prices slip before 3-year note supply


* U.S. begins Nov. refunding with 3-year note sale

* Benchmark yields hit highest levels since mid-Sept

* Fed to buy $1.25-$1.75 bln long-dated Treasuries

By Richard Leong

NEW YORK, Nov 12 (Reuters) - U.S. Treasuries prices fell onTuesday as investors made room for this week's government debtsupply in the aftermath of a surprisingly strong reading on jobgrowth in October.

Bond yields earlier rose to their highest sincemid-September but they were still lower than a month ago.

It is unclear whether these higher yield levels will bolsterbidding at this week's November refunding, where the TreasuryDepartment will sell $70 billion in debt.

"We have had a nice pickup in yield concession, but there issome supply congestion at the front end of the curve," saidDavid Keeble, global head of interest rates strategy at CreditAgricole Corporate & Investment Bank in New York.

Keeble noted some $100 billion in Treasury bills are slatedfor sale on Tuesday and Wednesday, which might complicatebidding for the new three-year note issue.

The last refunding of 2013 will begin with the auction ofthree-year notes at 1 p.m. (1800 GMT), followedby a $24 billion sale of 10-year debt onWednesday and a $16 billion auction of 30-year bonds on Thursday.

"The bond market is not a place to make money. It's a placeto diversify," said James Swanson, chief investment strategistat MFS Investment Management in Boston.

The 204,000 payroll gain last month easily beat estimates,which had been based on assumed job losses from the 16-dayfederal government shutdown.

The upbeat hiring news kindled speculation about the chancesthe Federal Reserve might shrink its $85 billion monthly bondpurchases at its December policy meeting rather than early 2014.

Still the overall jobs report contained enough worrisomedata about labor conditions that some economists reckon thecentral bank will refrain from scaling back its third round ofquantitative easing, which was implemented a year ago with thegoal to support the economic recovery.

In the meantime, the Fed will buy $1.25 billion to $1.75billion in Treasuries that mature from February 2036 to August2043 at 11 a.m. (1600 GMT), part of its latest QE3 purchase.

Overnight trading volume was heavier-than-usual after theU.S. bond market was closed on Monday for the Veterans Dayholiday. About $50 billion of Treasuries changed hands in thecash market as of 8 a.m. (1300 GMT), 34 percent above its 20-dayaverage, according to ICAP, the biggest interbroker dealer ofU.S. government debt.

On the open market, three-year notes were down2/32 in price, yielding 0.614 percent, up 2 basis points fromlate on Friday. Benchmark 10-year Treasury notes slipped 5/32 in price to yield 2.765 percent, up 2 basis pointsfrom late on Friday.

In "when issued" activity, traders expected the upcoming newthree-year note issue to yield 0.636 percent,below the 0.710 percent at the three-year auction in October.

Given the lack of major economic data this week, someanalysts pointed to a Senate panel's nomination hearing on FedVice Chair Janet Yellen to succeed current Fed Chairman BenBernanke as a likely market-moving event. Yellen is widely seencontinuing the Fed's current ultra loose monetary policy and anarchitect of its bond purchase programs.

Traders await for possible clues at Yellen's appearancewhether she might signal the Fed is considering to cling to itscurrent pace of bond purchases into the latter half of 2014,Credit Agricole's Keeble said.

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