TREASURIES-Yields near two-year highs as end to Fed stimulus seen
* Yields rise, hold near two-year highs
* Fed seen likely to reduce bond purchases in September
* Fed buys $3.22 billion in debt due 2020-2023
NEW YORK, Aug 16 (Reuters) - U.S. Treasuries prices fell Friday, extending a rout that has sent longer-dated yields to their highest in two years, as investors figure that further signs of sturdy economic growth will spur the Federal Reserve to begin paring back its bond purchase program next month. Treasuries have been roiled, along with German, British and other government bonds, as the U.S. and euro zone economies appear to have a more solid footing, increasing expectations that yields will continue their recent rise. A number of investors that had been betting on yield decreases on a summer lull in August, and after the U.S. Treasury ended its near-term supply, have also been stopped out of their positions, which has added to the bond weakness. "Some of the likelihood of a September taper continues to strengthen and you've also seen a lot of stable news coming out of the European zone. That may provide that window of opportunity for the Fed to start (withdrawing stimulus) in September," said Sean Murphy, a Treasuries trader at Societe Generale in New York. A Reuters poll showed Wednesday that a majority of economists expect the Fed to reduce bond purchases at its Sept. 17-18 policy meeting, with a consensus expecting that the U.S. central bank would reduce purchases by $15 billion initially.
The Fed bought $3.22 billion in notes due from 2020 to 2023 on Friday as part of its ongoing purchase program. The bond market has undergone a sharp selloff since the Fed started talking about paring back its monthly $85 billion in purchases. The benchmark 10-year yield has risen from about 1.6 percent at the start of May. The notes were last down 5/32 in price on Friday to yield 2.823 percent, the highest since August 2011. Thirty-year bonds dropped 5/32 in price on Friday to yield 3.823 percent. They rose to two-year highs of 3.845 percent in early trading. Investors will scour the minutes of the Fed's July meeting, to be released next Wednesday, for any signs of how soon it may reduce its bond purchases. The most important economic indicator in the coming weeks will be the release of August jobs data on Sept. 6, ahead of the Fed's Sept. 17-18 meeting. Volatility is expected to pick up in September as the potential pullback in bond purchases will coincide with a number of other major events, including German elections and the U.S. debt ceiling. Speculation over who will replace Fed Chairman Ben Bernanke is also likely to heat up, with most attention focused on Janet Yellen, the Fed's current vice chairman, and Lawrence Summers, a former U.S. Treasury secretary. "You've had more people think about a Larry Summers chairmanship. That's could be negative for Treasuries as he's seen as more hawkish than Yellen would be," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. A Reuters poll of economists released on Wednesday found that Yellen is still seen as the most likely successor to Bernanke, despite a swell of speculation in recent weeks that Lawrence Summers might have the inside track.