Treasury to sell $34 billion 2-year notes, $1 billion less than last month

NYSE traders
Adam Jeffery | CNBC

The Treasury Department announced Thursday that it would sell $34 billion in two-year notes in August, a $1 billion reduction from July. The agency cited the shrinking U.S. deficit.

U.S. Treasurys prices traded near unchanged, with benchmark yields in sight of 3 percent for the first time in two years as investors saw a Fed pullback on bond buying as soon as next month.

Minutes of the Federal Reserve's most recent policy-making meeting, released on Wednesday, provided few clues about the expected timing of the central bank's withdrawal from its asset-purchase program.

But the minutes also did little to dispel expectations that the slowdown in the so-called quantitative easing program would happen soon.

"The 10-year at 2.90 (percent) is a barometer of both expectations for economic growth and this clear concern that we're in territory that we don't know how to operate," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis.

A few Federal Reserve officials thought last month it would soon be time to slow the pace of their bond buying "somewhat," but others counseled patience, according to the minutes.

The 10-year benchmark Treasury note traded near flat on Thursday, bringing its yield to 2.896 percent from 2.892 percent late on Wednesday.

The 30-year bond gained 29/32 in price to yield 3.871 percent, from a yield of 3.921 percent late on Wednesday.

Yields on both those Treasurys have jumped more than 100 basis points since May as investors have increasingly seen the Fed soon pausing its $85 billion per month in purchases of Treasurys and mortgage-backed securities.

A Reuters poll showed last Wednesday that a majority of economists expect the Fed to reduce bond purchases at its Sept. 17-18 policy meeting, with a consensus expecting the U.S. central bank would reduce purchases by $15 billion initially.

The potential pull back in the so-called quantitative easing program now shines a spotlight on the next nonfarm payrolls report, due Sept. 6.

Fed policymakers want to see the unemployment rate nearer to 6.5 percent from its current 7.4 percent.

That next unemployment report is "going to be ultra important. It's going to be the last one before they meet in September," said Jacob Oubina, senior U.S. economist, with RBC Capital Markets in New York. Fed policymakers next meet Sept. 17-18. "I don't think they need to see a blowout (jobs) report. Something in and around the 200,000 zone" would be enough."

Data on Thursday showed that the number of Americans filing new claims for unemployment benefits rose last week but held close to a six-year low and gave a positive signal for hiring during the month.

(Read more: US jobless claims rise, but still near 6-year lows)

The Fed also will purchase between $1.25 billion and $1.75 billion in bonds due from 2036 to 2043 on Thursday as part of its ongoing purchase program.

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