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TREASURIES-U.S. bond prices rise before Yellen, 30-year supply

Richard Leong
Thursday, 14 Nov 2013 | 9:51 AM ET

* Yellen's Fed Chair nomination hearing in focus

* U.S. to complete refunding with $16 bln 30-year bond sale

* Fed to buy $2.75-$3.50 bln in medium-dated bonds

NEW YORK, Nov 14 (Reuters) - U.S. Treasury debt prices rose on Thursday as investors awaited clues on the path of monetary policy from a Senate panel hearing on Federal Reserve Vice Chair Janet Yellen's nomination to head the U.S. central bank. After Yellen's hearing, investors will contend with the last leg of this week's $70 billion quarterly refunding with a $16 billion sale of 30-year bonds at 1 p.m. EST (1800 GMT). The 30-year supply follows back-to-back solid auctions of three-year and 10-year notes on Tuesday and Wednesday. "Today is all about Yellen and whether she stays on the dovish side," said Jason Rogan, managing director of Treasuries trading at Guggenheim Partners in New York. Investors view Yellen, along with out-going Fed Chairman Ben Bernanke, as a strong proponent of the Fed's current ultra-loose monetary policy. They reckon a Fed under Yellen's leadership will continue this stimulative stand with the goal to lower unemployment and to raise inflation. "I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy," Yellen said in her prepared remarks released late Wednesday. The remarks were to be delivered at her confirmation hearing before the Senate Banking Committee which will begin at 10 a.m. EST (1500 GMT). Benchmark yields fell as low as 2.70 percent late Thursday after the release of those prepared remarks, which analysts considered bond-market friendly. Yields have since retraced slightly higher and have settled in a very narrow 4 basis point trading range. Rogan and other analysts attributed the market gains largely to traders exiting bets on lower prices spurred by an encouraging jobs report last Friday, rather than a wave of bullish bets on Treasuries. Since her prepared remarks are known, traders will track Yellen's replies to likely questions on quantitative easing and interest rate outlook from the Senate panel. "People are waiting to see whether she will continue on a dovish path from her prepared remarks or she might backtrack," Rogan said. On the open market, benchmark 10-year Treasury notes were 5/32 higher in price with a yield of 2.732 percent, down 2 basis points from late on Wednesday. Thirty-year bonds were up 11/32 for a yield of 3.808 percent, down 2 basis points from Wednesday's close.

DATA TAKE BACKSEAT With the focus on the Yellen hearing, traders brushed off Thursday's spate of domestic data that suggested a U.S. economy in need of continued aggressive stimulus from the Fed. The U.S. trade deficit grew to $41.78 billion in September, compared with a revised $38.70 billion in August, while the number of Americans filing jobless benefits for the first time totaled 339,000 last week, more than the 330,000 forecast by analysts, government data showed.

At 11 a.m. EST (1600 GMT), the Fed will buy $2.75 billion to $3.50 billion in Treasuries that mature from November 2020 to August 2023 as a part of this month's $45 billion in government debt for its bond purchase program. While the central bank sticks to its QE effort to support the economic recovery, the government has been selling debt to finance its spending. It is unclear how the 30-year bond sale will fare given the uncertainty around the Yellen hearing. In "when-issued" activity, traders expected the bond issue due in November 2043 to sell at a yield of 3.809 percent. This would be higher than the 3.758 percent at the 30-year bond reopening held in October.