TREASURIES-Bonds fall as data, hedging rekindle sell-off

* Hedging, stronger-than-expected data renew market fall

* Ten-year yield tests chart support in 3.18 pct area

* Traders still wary after brief solace from 30Y auction
(Update throughout, adds quote)

By Richard Leong

NEW YORK, Dec 10 (BestGrowthStock) – U.S. Treasury prices fell on
Friday, as stronger-than-expected economic data and hedging on
pending corporate bond supply kicked off fresh selling after a
pause in response to a strong 30-year bond sale.

Bond dealers sold Treasuries to lock in yields on the
corporate bonds they will underwrite next week, while investors
reduced their bond holdings after government data on prices and
trade suggested stronger-than-expected economic growth in the
fourth quarter and easing deflation risk. For a wrapup on
Friday’s data, see [ID:nN10198692]

“It seems like we have rate-lock selling ahead of next
week’s supply. It tends to be very aggressive,” said Brian
Edmonds, head of rates trading at Cantor Fitzgerald in New
York.

U.S. investment-grade bond issuance totaled nearly $18
billion so far this week, which tied as the fourth biggest deal
week in 2010, according to IFR, a Thomson Reuters service. For
more, see [ID:nN10264408]

“We also have some traders long coming out of Thursday’s
auction and they were trying to unload their positions ahead of
the weekend,” Edmonds said.

The renewed sell-off wiped out earlier gains from overseas
buying in the wake of a strong 30-year bond auction on Thursday
that bolstered confidence in holding U.S. government debt. This
dashed the hopes of some market stability following a dramatic
sell-off earlier this week.

“This is still a treacherous market for long-term
investors,” said Mike Franzese, head of Treasury trading at
Wunderlich Securities in New York.

The benchmark 10-year note yield (US10YT=RR: ) last traded at
3.23 percent after it touched the 3.18 percent area for a
second straight day but failed to breach subsequent chart
levels in the 3.15-3.16 percent area.

The 10-year yield recorded a six-month peak of 3.33 percent
earlier this week, as investors liquidated their long bond
positions due to inflation and deficit fears in response to an
announcement of a deal between President Barack Obama and
Republican lawmakers to extend federal tax cuts.

This week’s yield spike also kindled worries of rising
mortgage rates and other consumer borrowing costs, which are
referenced against Treasury yields.

After surviving this week’s $66 billion in coupon-bearing
supply, traders will get snapshots on the economy in advance of
the Federal Reserve’s policy-setting meeting next Tuesday.

Apart from Friday’s government data, Thomson Reuters and
University of Michigan will report at 9:55 a.m. EST (1455 GMT)
on their figures on consumer sentiment in early December, which
economists predict improvements from November. For more, see
[ECI/US]

Separately, the Federal Reserve will announce at 2 p.m. EST
(1900 GMT) its next schedule of Treasury purchases tied to its
$600 billion quantitative easing program, known as QE2 and
reinvestment of proceeds from maturing mortgage securities.
(Reporting by Richard Leong; Editing by Theodore d’Afflisio)

TREASURIES-Bonds fall as data, hedging rekindle sell-off