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TREASURIES-U.S. bond prices steady as boost from Yellen fades

Richard Leong
Friday, 15 Nov 2013 | 10:36 AM ET

* Data hint U.S. manufacturing sector decelerating

* Fed to buy $750 mln to $1 bln longer-dated Treasuries

NEW YORK, Nov 15 (Reuters) - U.S. Treasuries prices were little changed on Friday as disappointing manufacturing data offset competition from Wall Street where blue-chip stock indexes hit intraday record highs. U.S. equity prices opened higher on reassuring remarks from Federal Reserve Chair nominee Janet Yellen, who suggested the central bank will likely stick with its aggressive stimulative policy to lower unemployment and to avert deflation. Treasuries prices had enjoyed a bounce from Yellen, but they faded after a weak $16 billion 30-year bond auction on Thursday. "Bonds are really listless today," said Mary Beth Fisher, head of U.S. interest rates strategy at SG Corporate & Investment Banking in New York. "The market has reversed the gains from Yellen." Bonds still recouped this week about a third of the losses tied to the encouraging October jobs report a week ago. Prices of benchmark 10-year Treasury notes were little changed on the day at 100-13/32 to yield 2.703 percent, while the 30-year bond was up 2/32 in price for a yield of 3.797 percent, down 0.4 basis point from Thursday. On the week, the 10-year and 30-year yields were on track to fall 4 basis points. They rose 13 basis points and 15 basis points last week, respectively. Perceived market-friendly remarks from Fed Vice Chair Yellen at the Senate panel hearing for her nomination to head the central bank next year were the main catalyst for the rebound. On Thursday, Yellen told the Senate Banking Committee on Thursday: "I consider it imperative that we do what we can to promote a very strong recovery." Her defense of the Fed's heavy pace of bond purchases to support a still-sluggish economy signaled to investors the central bank is unlikely to taper anytime soon. Friday's disappointing data on manufacturing supported Yellen's case for further stimulus. U.S. industrial output unexpectedly fell 0.1 percent in October, while the New York Federal Reserve said its gauge on regional manufacturing showed a contraction for the first time in six months.

At 11 a.m. (1600 GMT), the Fed will buy $750 million to $1 billion worth of Treasuries that come due in February 2036 to November 2043 for its QE3 program. The Fed's QE operation, together with the mildly weak data, mitigated pressure from this week's $70 billion in coupon-bearing supply, which bond dealers will likely resell into the open market in the coming days.