TREASURIES-U.S. bond prices flat before auction, FOMC minutes
* U.S. 10-year note sale set for highest yield in two years
* Traders to look for clues from FOMC minutes, Bernanke
* U.S. mortgage rates rise to two-year highs
* Fed to buy $3 billion to $3.75 billion in Treasuries
NEW YORK, July 10 (Reuters) - U.S. Treasuries prices were little changed on Wednesday ahead of a $21 billion auction of 10-year notes and the Federal Reserve's minutes from its June policy meeting. Traders also awaited remarks from Fed Chairman Ben Bernanke later on Wednesday in hopes for clues on the timing and degree of a possible reduction in the U.S. central bank's $85-billion-a-month bond purchase program later this year. Uncertain outcomes from these events might revive market swings, causing some traders to reduce their bond positions. This selling offset safehaven buying due weaker-than-expected Chinese trade data released overnight, which rekindled worries about weakening global growth. ""Everybody is bracing for volatility in the near term. People with near term profit to take are doing so," said Com Crocker, managing director of government and agency securities trading at Mesirow Financial in New York. The Treasury's 10-year note auction is scheduled for 1 p.m.
Still the bond market has found some footing since benchmark yields rose to near two-year highs on Monday. Solid demand at a $32 billion auction of three-year notes on Tuesday signaled support for the market at current yield levels, raising hopes of good demand for the 10-year and 30-year supply, analysts said. Traders expected the reopening of a 10-year note issue, originally sold in May, to fetch the highest yield since June 2011. In "when-issued" business, traders expected the reopened 10-year note to sell a yield of 2.650 percent. On the open market, the 10-year Treasury note last traded 1/32 lower in price with a yield of 2.644 percent, up 0.6 basis point from late Tuesday but below the 23-month high of 2.755 percent set Monday. After the 10-year note auction, the Federal Reserve will release at 2 p.m. (1800 GMT) the record on the June 18-19 meeting of its policy-setting group, the Federal Open Market Committee (FOMC). While the minutes are not expected to contain ground-breaking news, analysts expected they will offer insights into the discussions among policy-makers about the approach on a possible reduction of the Fed's current bond buying program, known as QE3, which Wall Street expects might happen in September. "The minutes should contain more about possible tapering," said Sean Murphy, a Treasuries trader at Societe Generale in New York. Fed Chairman Bernanke's press conference after that meeting roiled financial markets, as he offered the roadmap the Fed might embark on to reduce stimulus if the economy shows further improvement. Bernanke is scheduled to speak about the history of the Fed at an event at 4:10 p.m. (2010 GMT), where he will take audience questions. Since the June FOMC meeting and an upbeat June payrolls report last Friday, Treasury yields climbed to 23-month highs on Monday before they retreated on a bout of bargain-hunting and short-covering. The spike in bond yields has caused a jump in mortgage rates which some economists worry might hurt the housing recovery. The Mortgage Bankers Association said on Wednesday 30-year mortgage rates averaged 4.68 percent last week, the highest level in two years and up 10 basis points from the prior week.
Rising borrowing costs have reduced loan demand to buy a home and to refinance. The group's mortgage activity index for last week has fallen to its lowest level since mid-March, while its index on refinancing has hit its lowest level in two years.
As part of its ongoing QE 3 bond-buying program, the Fed will buy $3.00 billion to $3.75 billion in Treasuries that will come due April 2019 through June 2020 at 11 a.m. (1500 GMT).