US Bond Prices Rise; 10-year Fluctuates Around 2%

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U.S. Treasurys prices edged up on Friday as traders evaluated the likelihood of the U.S. Federal Reserve pulling back on bond purchases this year and whether a recent sell-off was overdone.

Benchmark 10-year Treasurys yields traded around the key 2 percent level, falling below it at times.

The notes have generally held above 2 percent yields since Fed Chairman Ben Bernanke said Wednesday that the U.S. central bank may pull back on its bond purchases in the coming few meetings if data shows the economy is gaining steam.

Investors are trying to determine whether a dramatic jump in yields this month is exaggerated relative to the pace of economic improvement, or whether yields are likely to continue to climb on stronger growth and a more hawkish turn by the Fed.

"Now the market has heard Bernanke and seen the minutes and we're seeing some better data, the market is going to start to decide where they think the Fed is going, sooner than later," said Jason Rogan, managing director of Treasuries trading at Guggenheim Partners in New York.

"As of the right now, the move of the market has been interpreted that Bernanke's comments, although maybe taken a little bit out of context, give the impression that the Fed is willing to at least announce tapering over the next couple of meetings, and that, by itself, might be enough to push us to a little bit higher yields," he said.

(Read More: Aiming for Nuance, Bernanke Does Rhetorical Figure Eights)

Ten-year notes were last up 1/32 in price to yield 2.00 percent, after earlier rising to 2.02 percent on data that showed orders for long-lasting U.S. manufactured goods rose more than expected in April.

The notes' yields have risen from as low as 1.88 percent on Wednesday, before Bernanke's comments, in huge trading volumes. Around $400 billion in Treasurys traded in the United States Thursday, after more than $600 billion changed hands Wednesday.

"No one can afford to sit around and not really contemplate these big questions. Once your decision becomes there is more risk than I thought, you're going to retarget prices," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.

The question of how much higher yields should trade, if the Fed ends or reduces its purchases, is now the key issue for traders and investors.

"That's the million-dollar question. It's so difficult to fully appreciate how much of these low rates is because of the Fed buying action," said Guggenheim's Rogan.

Ten-year yields have surged from 1.61 percent at the beginning of May on optimism about the economy, a move that some analysts think is an overreaction relative to the data.

The next key report will be the jobs data for May, due to be released in two weeks.

Rogan expects Treasurys will remain rangebound ahead of that report, with 10-year note yields unlikely to break above support at around 2.08 percent, where the debt had traded at their high yields in March.

The Treasury will sell $99 billion in new coupon-bearing debt next week, including $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion seven-year notes on Thursday.

The U.S. bond market closed at 2:00 p.m. on Friday, and will be closed Monday for the Memorial Day holiday.