TREASURIES-Long bonds firm, 10-yr/30-yr spread near 2-wk low

TOKYO, Oct 26 (BestGrowthStock) – U.S. 30-year Treasury bonds inched
higher in Asian trading on Tuesday, clinging to gains made the
previous day when the long-dated bonds rose on bargain-hunting.

* The ten-year/30-year yield spread was little changed near
134 basis points, staying close to its lowest level in more than
two weeks and down from a peak of 144.4 basis points marked last
week.

* Steepening in the 10-year/30-year yield curve has taken a
breather after the 30-year yield rose to about 4 percent
recently, a level high enough to attract buying from long-term
investors, said a portfolio manager for a major Japanese bank.

* “Lots of people have 10-year/30-year steepener positions,
and so there has been some short-covering in the 30-year sector,”
he said. “It is becoming hard to tell how the market will move
once (further) quantitative easing is implemented. Basically, I
think the steepening of the curve will continue,” he added.

* Thirty-year Treasuries rose about 7/32 in price to yield
3.902 percent (US30YT=RR: ), down about 1 basis point from late
U.S. trade on Monday. Ten-year Treasuries edged up about 2/32 in
price to yield around 2.558 percent, down about 1 basis point.

* Analysts at Deutsche Bank said in a research note that the
10-year/30-year curve may continue to flatten in the near-term
due to a number of factors.

* “We think there is going to be a potentially larger Fed
purchase in the bond sector on Tuesday … than recent purchase
sizes. We expect a $2.65 billion purchase, compared to $2.2
billion on September 30,” the Deutsche analysts said.

* “The potential purchase size increase is purely a result of
the overall higher agency debt and mortgage prepayment
reinvestments this month, rather than a proportionately higher
Fed purchase in bonds than shorter maturity issues,” they added.

* The Fed in August announced it would buy Treasuries using
funds from maturing agency bonds and mortgage-backed securities.
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* Among the other factors cited by the Deutsche analysts was
the possibility of the curve flattening if the Fed conducts less
quantitative easing than the market now expects. In that case,
the 10-year/30-year slope should price in a lower inflation risk
premium, they said.

* In a Reuters poll earlier this month, most U.S. primary
dealers said they expect the Fed to unveil new quantitative
easing in November, with the projected size ranging from $500
billion to $1.5 trillion. [FED/R]
(Reporting by Masayuki Kitano; Editing by Joseph Radford)

TREASURIES-Long bonds firm, 10-yr/30-yr spread near 2-wk low