TREASURIES-Higher yields may be a near-term trend

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

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

* Traders wary despite brief solace from 30-year auction
(Adds analyst’s quotes, byline, updates prices)

By Chris Reese

NEW YORK, Dec 10 (BestGrowthStock) – U.S. Treasuries fell in price
on Friday, capping off a week of relatively aggressive selling
spurred by rising growth outlooks and deficit worries, and
which may have bonds on track for even higher yields.

Bond dealers also sold Treasuries to lock in yields on the
corporate bonds they will underwrite next week, while investors
reduced 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].

Friday’s selling had benchmark Treasury yields on track for
the biggest one-week rise so far this year, and that could set
the tone for Treasuries trade in the near term, said Kim
Rupert, managing director of global fixed income analysis at
Action Economics in San Francisco.

“Yields are going to remain biased higher, but not in a
straight line,” Rupert said, citing the rising deficit and
inflation fears and a more robust growth outlook.

Rates climbed on Friday, with the benchmark 10-year note
(US10YT=RR: ) trading 14/32 lower in price to yield 3.26 percent,
up from 3.21 percent late Thursday.

“It seems like we have rate-lock selling ahead of next
week’s (corporate) 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.

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

The 10-year yield recorded a six-month peak of 3.33 percent
this week as investors liquidated 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.

Outside of the price and trade data, Treasuries were also
lent a bearish tone by a stronger-than-expected rise in
consumer sentiment in December in the Thomson
Reuters/University of Michigan survey.

“It adds to a growing number of economic indicators that
are looking better than expected,” said Pierre Ellis, senior
global economist at Decision Economics Inc. in New York.

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, dubbed QE2, and
reinvestment of proceeds from maturing mortgage securities.
(Additional reporting by Richard Leong; Editing by James

TREASURIES-Higher yields may be a near-term trend