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TREASURIES-Bonds steady as threat of govt shutdown hurts risk appetite

Karen Brettell

* Govt. shutdown threat boosts safety demand for bonds

* Year-end demand supports bond prices

NEW YORK, Dec 21 (Reuters) - U.S. Treasuries were steady on Friday as U.S. President Donald Trump threatened a very long government shutdown and investors were reluctant to hold risky assets before the weekend. Trump called on the Senate to pass spending legislation that includes his $5 billion demand for border wall funding. The Republican-led Senate had already approved funds for the government through Feb. 8 without money for the wall. But Trump pushed Republican allies in the House of Representatives on Thursday to use the short-term funding bill as leverage to force through the border wall money despite Democratic objections.

Markets are generally de-risking before the weekend. The extra uncertainty caused by the threat of a shutdown is certainly not helping, said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. Bonds have rallied since the Federal Reserve on Wednesday struck a more dovish tone than in its previous meetings but pledged to keep withdrawing support from an economy it views as strong. Some investors had expected the Fed would indicate that further rate increases would be more data dependent as tumbling stock markets and slowing international growth raises concerns that the U.S. economy could also face weakness. They were dovish, (but) they were not dovish enough for markets liking, said Goldberg. Stock markets fell on the Fed statement, which increased demand for low-risk U.S. government debt. Data on Friday showed that the U.S. economy slowed in the third quarter a bit more than previously estimated, but the pace was likely strong enough to keep growth on track to hit the Trump administration's 3 percent target this year. Bonds have also benefited this week from year-end demand from fund managers rebalancing portfolios.

Benchmark 10-year yields were steady on the day

to yield 2.792 percent. The yields fell to a more than eight-month low of 2.748 percent on Thursday and have fallen from a seven-year high of 3.261 percent on Oct. 9.

(Reporting by Karen Brettell; editing by Jonathan Oatis)

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