Prices near flat as Wednesday data, Fed eyed

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Prices of U.S. Treasurys traded nearly flat on Tuesday ahead of a number of major events on Wednesday, including U.S. economic growth data, a Treasury refunding announcement and the conclusion of a two-day Fed meeting.

With so much key information coming later in the week, trading both on Monday and Tuesday has held to a tight range, with investors wary of taking on major positions.

"We are definitely in a wait-and-see mode this week," said Wilmer Stith, co-manager of the Wilmington Broad Market Bond Fund in Baltimore.

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Markets are especially keen for clarity on when the U.S. Federal Reserve could slow or even stop its $85 billion per month in buying of Treasurys and mortgage-backed securities, stimulus aimed at lowering unemployment.

Fed speakers, including Chairman Ben Bernanke, have hinted recently at a pullback, sending yields soaring from May. Wednesday's Fed statement at the end of the bank's policy meeting could hint at a slower buying pace to come, as well.

"We get the statement from the FOMC tomorrow and that will lay out—for at least 48 hours until we get the employment data on Friday—what the committee's ideas are with regard to tapering the Fed bond purchases," Stith added.

Since the timing and pace of cuts to bond buying depend on the health of the world's biggest economy, the market is focused on data releases such as the second-quarter gross domestic product report due at 8:30 a.m. on Wednesday and the July U.S. employment data, due at the same time on Friday.

The Treasury's quarterly refunding announcement on Wednesday has also attracted unusually intense interest.

Some analysts expect the Treasury to cut coupon-bearing debt sales for the first time since September 2010 as a shrinking federal budget deficit reduces funding needs.

Traders expect the first cuts in issuance to be in the shortest maturities. Less short-term debt should support prices and keep borrowing costs down for the federal government, whose deficit, while on track to shrink this year, remains elevated from its level before the 2007-2009 recession. People are most focused on "the size of the three-year note issuance and the Treasury's guidance for 2s and 5s throughout the quarter," said Thomas Simons, money market economist at Jefferies & Co in New York.

The Treasury Department will release its quarterly refunding details on Wednesday at 8:30 a.m.

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The Conference Board's consumer confidence index, which showed consumers' improved view of their current situation was undercut by less confidence in the outlook six months from now, gave slight support to Treasurys.

S&P/Case-Shiller home price data released Tuesday had little market impact. Markets are also watching ADP's private-sector employment report on Wednesday and the Institute for Supply Management's manufacturing index on Thursday.

The benchmark 10-year Treasury note dipped 2/32 in price to yield 2.604 percent from 2.61 percent late on Monday.

As part of its ongoing stimulus, the Federal Reserve Bank of New York said it purchased $1.464 billion in Treasury coupons with maturities ranging from February 15, 2036 to November 15, 2042.

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