TREASURIES-U.S. bond prices dip on profit-taking, flat on week
* Benchmark yields poised to end little changed for week
* Absence of supply, struggling stocks may lower yields in coming days
* Treasuries funds post record weekly outflow - Lipper
NEW YORK, Aug 9 (Reuters) - U.S. Treasuries prices slipped in light volume on Friday, as traders expected the bond market to resume its rebound of the past five weeks in the absence of supply and the stock market's struggle to advance from near record levels. Traders cited investors buying a high percentage of this week's $72 billion coupon-bearing supply and positive technical signals as catalysts for benchmark yields to retrace further from their recent near two-year peak of 2.75 percent. "We had a decent run-up on longer-dated Treasuries prices this week. Now people are taking money off the table," said John Brady, managing director of interest rate futures sales at R.J. O'Brien and Associates in Chicago. The 10-year yield could break below 2.50 percent, which would be its lowest level in 2-1/2 weeks, if a late summer mini-market rally materializes due partly to a pullback in U.S. stock prices, traders said. Wall Street stocks were set for their worst week since June on nagging worries about the Federal Reserve reducing stimulus. The Standard & Poor's 500 index was 0.45 percent lower on the day and about 20 points below its record intraday high set a week ago. "If we see the stock market correct, the bond market could rally to the 2.45 percent level," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York. Milstein cautioned however even if yields fall in the next couple of weeks, the longer-term trend is still for yields to head higher. This bearish outlook on the bond market has spurred more investors to redeem fund shares. They pulled a record $3.27 billion out of U.S.-based Treasuries funds in the latest week, data from Thomson Reuters' Lipper service showed on Thursday.
Recent economic data, with the exception of the disappointing July payrolls, have supported the view of steady U.S. economic growth in the second half in the wake of possible momentum seen this spring. Economists marked up their view on second-quarter gross domestic product after data showed the U.S. trade deficit in June shrank to its smallest in over 3-1/2 years. Many of them now forecast second quarter GDP would be revised above 2.0 percent later this month after it was originally reported at a modest 1.7 percent annualized rate. A strong upward GDP revision was tempered by a surprise drop in wholesale inventories in June.
In below-average summer trading volume, the 10-year Treasury note last traded 2/32 lower in price with a yield 2.605 percent, up nearly 1 basis point from late on Thursday. The 10-year yield was poised to end little changed on the week after rising 11 basis points the previous two weeks. The 30-year yield was on track to fall 4 basis points on the week, staying in the middle of a 26 basis-point trading range established since July 10. The medium-term Treasuries remained the most vulnerable maturities as traders have been speculating on the Federal Reserve's first short-term interest rate increase whenever it halts its third round of quantitative easing, dubbed QE3. The five-year Treasury yield was little changed on the week at 1.368 percent, as it has risen 0.50 percentage point since late May after Fed Chairman Ben Bernanke in congressional testimony hinted at the possibility the central bank might dial back its bond-purchase stimulus.