TREASURIES-Prices rise as Fed tapering seen as small
* Yields fall from two-year highs
* Fed seen tapering bond purchases at next week's meeting
* Treasury to sell $65 billion of three-, 10-, 30-year bonds
* Fed buys $1.47 bln in bonds due 2037-2043
NEW YORK, Sept 9 (Reuters) - U.S. Treasuries yields fell from two-year highs on Monday as more investors bet that the Federal Reserve may reduce bond purchases by less than previously thought when it meets next week. Benchmark 10-year note yields have fallen 3 percent since Friday's employment report showed that employers added fewer jobs than expected in August, while jobs gains for June and July were revised downward. The Federal Reserve is seen as likely to announce a reduction in its $85 billion a month bond purchase program when its policymakers meet next week, though Friday's payrolls data has led some to expect the initial pullback may be small. "After the disappointing employment report on Friday the market is now expecting a very small amount of tapering, if tapering begins at all," said Gary Pollack, head of fixed income trading at Deutsche Bank Private Wealth Management in New York. "They can begin the process and see how the market reacts, instead of hitting the market all at once this is a very small punch instead of a big punch," he said. Most economists at primary dealers expect the Fed will announce a cut in bond purchases, according to a Reuters poll on Friday. The median of forecasts from the 18 dealers was for the central bank to initially shave $15 billion per month from the purchases, down from a median forecast of $18 billion dollars in a similar Aug. 2 poll, and a median of $20 billion in a poll of 15 dealers in early July. Benchmark 10-year notes were last up 13/32 in price to yield 2.89 percent, down from 2.94 percent late on Friday. The notes had initially rallied strongly on Friday's employment report before giving back much of the gains later in the session. Economic data later in the week will also be closely watched for signs of strength of the economy, with retail sales data on Friday likely to be the most influential. "It's arguably the last really important data point we see before the Fed's announcement next Wednesday," said Jason Rogan, managing director in Treasuries trading at Guggenheim Partners in New York. The Fed bought $1.47 billion in bonds due 2037 to 2043 on Monday as part of its ongoing purchase program. Concerns over Syria also added a bid to the debt on Monday. Syrian President Bashar al-Assad denied that he was behind a chemical weapons attack on the Syrian people, as the White House on Sunday pressed ahead with the uphill effort of persuading Congress to approve a military strike to punish Assad.
The Treasury will sell $65 billion in new three-year, 10-year and 30-year bonds this week, which may add some pressure to the market in the coming days. Treasuries yields may also rise on hedging needs as Verizon prepares to launch a record-breaking corporate bond deal. The company is expected to sell at least $20 billion in debt as early as Wednesday, according to IFR.