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US bond prices hold gains after three-year note sale

Tuesday, 10 Dec 2013 | 3:49 PM ET
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U.S. Treasurys prices rose on Tuesday as investors focused on when the U.S. central bank is likely to pare back this $85-billion-a-month buying program.

The Treasury auctioned $30 billion in three-year notes at a high yield of 0.631 percent. The bid-to-cover ratio, an indicator of demand, was 3.55.

The benchmark 10-year note last traded 12/32 higher in price with a yield of 2.802 percent.

U.S. Treasurys prices rose earlier on Tuesday as investors bought to exit bearish bets in advance of a an auction, part of this week's $64 billion in coupon-bearing government debt supply. The Treasury will also hold a $21 billion reopening of 10-year notes on Wednesday and a $13 billion auction of a prior 30-year bond issue on Thursday.

Bond yields retreated further from their three-month highs as traders reconsidered whether the Federal Reserve would shrink its third round of quantitative easing at its two-day policy meeting next week in the wake of an upbeat November payrolls report and other encouraging economic data.

Even if the Fed were to signal a pullback in bond purchases, policy-makers will likely opt for a small one in order to not trigger a bond market sell-off, which would send long-term interest rates higher and hurting the housing market.

"We might see a gradual tapering. The Fed won't let rates go much higher,'' said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

Expectations for the Fed
Is December the time to taper? CNBC's Steve Liesman digs into the numbers and says December seems more likely than ever for an end to QE.

The 10-year yield climbed to 2.932 percent on Friday, which was the highest since Sept. 11, in a reaction to a stronger-than-forecast jobs report for November.

"The market has fully priced in a tapering. A 2.90 percent yield might be an overshoot,'' said John Herrmann, director of interest rates strategy with Mitsubishi UFJ Securities USA in New York.

The 30-year Treasury bond was last up 23/32 in price, with yields falling to 3.832 percent.

—By Reuters

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