TREASURIES-Debt prices up in bargain hunting before auction

* Seven-year yield is 2.88 pct vs 2.25 pct at Nov. auction

* Volume low in holiday-thinned week
(Recasts lead, adds analyst’s comment, updates prices)

By Chris Reese

NEW YORK, Dec 29 (BestGrowthStock) – U.S. Treasury debt prices rose
on Wednesday with some bargain hunting after a poor auction of
five-year notes on Tuesday sparked a sell-off, though trading
was clouded by anxiety over the sale of $29 billion in
seven-year Treasury notes.

The U.S. Treasury Department will hold its last auction of
the year at 1 p.m. EST (1800 GMT). Market participants said it
was hard to predict whether the sale would go well, as a $35
billion two-year note auction did on Monday, or whether it
would be sloppy, like Tuesday’s $35 billion five-year note
auction.

“Given the thin trading and illiquid flows, I think there
is some concern over whether the seven-year will tail back as
much as the five-year yesterday,” said Marty Mitchell, chief
market technician at Stifel Nicolaus in Baltimore.

The high yield at Tuesday’s auction was roughly 4.5 basis
points above the yield at which comparable securities were
trading simultaneously in the open market, a sign of poor
demand. The Treasury market sold off after the auction on
Tuesday, but regained some ground as bargain hunters appeared
during Asian and European trading hours.

The seven-year sale may fare better, Mitchell said. One
reason for a potential increase in demand is the run-up in the
seven-year note’s yield since its last auction in late
November. It fetched a high yield of 2.25 percent at that time.
On Wednesday, the seven-year note (US7YT=RR: ) was yielding 2.83
percent.

“A 40 basis point concession in yields into an auction
certainly should be enough to attract demand,” Mitchell said.

“But it’s the last auction in the year in a week where not
only is it a holiday week but there are still lingering effects
from the weather in the Northeast that are affecting flows.”

Trading volume remained low, though it was higher than the
previous two days.

“Today’s seven-year auction will be very tricky, on one
hand the factors we have discussed all week — the illiquid
market conditions with lack of balance sheet remain, yet on
flip side the seven-year has cheapened up significantly,”
Justin Lederer, Treasury analyst with Cantor Fitzgerald in New
York, said in a note to clients.

Ahead of the sale, benchmark 10-year Treasury notes
(US10YT=RR: ) were trading 9/32 higher in price to yield 3.45
percent, down from 3.49 percent late Tuesday, while 30-year
bonds (US30YT=RR: ) were 19/32 higher to yield 4.50 percent from
4.54 percent.
(Additional reporting by Emily Flitter in London; Editing by
Leslie Adler)

TREASURIES-Debt prices up in bargain hunting before auction