TREASURIES-Bonds slip as investors trim Fed easing bets

* Intermediate issues hit, mixed moves along yield curve

* Fed to buy inflation bonds in operation

* Fed’s Beige Book expected to show sluggish growth

By Richard Leong

NEW YORK, Oct 20 (BestGrowthStock) – U.S. government bond prices
fell in light trading on Wednesday as investors scaled back
bets on more policy easing from the Federal Reserve and booked
profits on the prior day’s safe-haven rally.

There was no news that triggered the market pullback,
although a weaker dollar and stronger stock index futures
provided a less-friendly backdrop for holding U.S. bonds.

After modest gains in overseas markets, Treasuries turned
lower, as selling emerged on medium-term notes. This steepened
the short-to-medium part of the yield curve, and flattened the
long end of the curve.

Bonds, especially intermediate issues, have become
expensive in a rally fueled by bets the U.S. central bank will
conduct more quantitative easing (QE) after its Nov. 2-3 policy
meeting in a bid to stimulate the sluggish economy, analysts

“The market has been leaning long with the anticipation of
QE2. It’s hard to keep those positions two weeks before the
meeting,” said Thomas Roth, executive director of U.S.
government trading at Mitsubishi UFJ Securities USA in New

Traders have been waiting for details on the form of a
second round of quantitative easing from the Fed, which they
nicknamed QE2, analysts said.

In recent days, a number of Fed officials, including
Chairman Ben Bernanke, have expressed support for more monetary
stimulus with the goal of averting deflation.

But several policymakers have cautioned against such a move
due to the risk of rising inflation down the road. Two of them
— Richmond Fed President Jeffrey Lacker and Philadelphia Fed
chief Charles Plosser — will speak publicly Wednesday. For
details, See [FED/DIARY]

The Fed will release its Beige Book on regional economic
conditions at 2 p.m. EDT (1800 GMT) and is seen reinforcing the
view of weak U.S. growth.

“It will probably confirm we are in a weak spot,” Roth

Also, the Fed is set to buy Treasury Inflation-Protected
Securities (TIPS) with proceeds from maturing mortgage
securities later Wednesday. This is third TIPS purchase after
it bought $360 million in August and $550 million in

Since mid-August, the Fed has bought $55 billion in TIPS
and regular Treasuries. [ID:nN20EDTABL]

The benchmark 10-year note (US10YT=RR: ) was 6/32 lower, with
its yield at 2.51 percent, up from 2.48 percent late Tuesday,
while the 30-year bond (US30YT=RR: ) was flat in price for a
yield of 3.92 percent.

The yield spread between 10-year and 30-year debt shrank to
141 basis points from 144 basis points late Tuesday, but the
2-to-10-year part of the yield curve steepened to 213 basis
points from 211 on Tuesday.
(Reporting by Richard Leong; editing by Jeffrey Benkoe)

TREASURIES-Bonds slip as investors trim Fed easing bets