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TREASURIES-Long-dated bonds up on curve flattening trades

Ellen Freilich
Friday, 22 Nov 2013 | 9:08 AM ET

* Fed to buy long-dated Treasuries as part of ongoing purchase program

* Next week's 2-, 5- and 7-year Treasury supply weighs on those sectors

* Fed's Lockhart expects QE taper debate at December meeting

* Lockhart, not FOMC voter in 2014, says exit manageable once time comes

* Lockhart says policy likely to be accommodative for years

NEW YORK, Nov 22 (Reuters) - Long-dated Treasuries prices rose on Friday as curve flattening trades unwound a small bit of the curve steepening that has occurred amid talk of the Federal Reserve cutting back its purchases of Treasuries.

The curve has shifted to its steepest level since 2011 amid continued debate about when the Federal Reserve might trim its bond purchases, a program known as QE3 and intended to stimulate the economy by keeping long-term interest rates low.

Fed officials have said reductions in those purchases depend on what data show about the strength and sustainability of the economic recovery.

But if those cutbacks in purchases of longer-dated Treasuries were to occur, long-term rates would tend to rise.

At the same time the Fed has insisted that official short-term rates would remain low and some economists, those on the dovish side, believe the Fed could keep the federal funds rate near zero even to early 2016.

"Therein lies the rub because what the Fed giveth to the front-end, it taketh from the back," said David Ader, Treasury strategist at CRT Capital Group in Stamford, Connecticut.

"The odds have risen for a December announcement given the last non-farm payrolls report and the Fed's willingness to ease purchases," he said. The market is at least close to having discounted those higher odds.

Technical factors were also supportive.

"Ten-year yields, for example, build up volume at the lower end of Thursday's trading range," he said.

Also, the Fed is expected to buy $1.25 billion to $1.75 billion in Treasuries maturing between February 2036 and November 2043.

While short- and medium-term Treasuries posted narrow losses, the benchmark 10-year Treasury note was up 2/32, its yield easing to 2.78 percent.

The 30-year bond rose 14/32 in price, its yield easing to 3.87 percent.

Weighing on the short- and medium-term Treasuries was upcoming supply.

The Treasury will sell two-, five- and seven-year Treasury notes on Monday, Tuesday and Wednesday, respectively.