TREASURIES-Prices cut before next week’s supply

* Prices cut before next week’s three note auctions

* Treasury will sell 2s, 5s, 7s next week

* 5- 7-yr maturities underperform ahead of supply

(Adds comments, updates prices, changes byline)

By Ellen Freilich

NEW YORK, Dec 23 (BestGrowthStock) – U.S. Treasury prices fell on
Thursday as dealers cut prices to make room for new inventory
and economic data came in a bit stronger than forecast.

The biggest price cuts occurred among five- and seven-year
notes. The Treasury said it will sell $35 billion in two-year
notes on Monday, $35 billion in five-year notes on Tuesday and
$29 billion of seven-year notes on Wednesday.

“The Treasury has $35 billion in two-year notes rolling
off, but the 5s and 7s are all new money and the market is
setting up for that,” said Steve Van Order, fixed income
strategist with Bethesda, Md.-based Calvert Asset Management,
which has more than $14.5 billion in assets under management.

Five-year notes (US5YT=RR: ) fell 8/32, their yields rising
to 2.07 percent from 2.01 percent on Wednesday.

Seven-year notes (US7YT=RR: ) fell 11/32, their yields rising
to 2.79 percent from 2.74 percent on Wednesday.

The bulk of the week’s trading came in the first part of
the week when the Federal Reserve bought Treasuries as part of
its plan to stimulate economic growth and avert deflation.

“The Fed was the big buyer when there was no other activity
so the market had a bid,” said Oder.

With no Fed purchases of Treasuries on Thursday, the market
pursued the task of adjusting prices before the auctions.

“The Street just needs to set up,” said Oder, referring to
the primary dealer community that underwrites Treasury
auctions. “Demand drove the market at the beginning of the week
and setting up for supply drove it at the end of the week.”

Traders said prices might have to come down and yields rise
a bit more to drum up good demand for next week’s auctions
which take place when many people are on holiday.

“It’s a pretty large amount of supply in what will be a
relatively thin week and you would think a lot of people have
already squared their books,” said Lou Brien, market strategist
at DRW Trading Group in Chicago.

BETTER ECONOMIC DATA

Better economic data may also have weighed on Treasuries.

“(The reports were) all just slightly better than
expected,” said Jim Vogel, interest rate strategist at FTN
Financial in Memphis, Tennessee

The Labor Department said new claims for U.S. jobless
benefits slipped to 420,000 in the week ended Saturday from a
revised 423,000 new claims the week before.

New orders for U.S. manufactured goods, excluding the
volatile transportation sector, also rose more than expected in
November to record their largest gain in eight months.

Data also showed that confidence among U.S. consumers rose
in December to its highest level since June, on improved job
prospects and larger discounts from retailers, and that sales
of new single-family homes rose in November but to a
lower-than-expected rate.

In the coming week, 10-year Treasury yields will likely
trade in a recently set range between 3.25 percent and 3.44
percent, Oder said.

Much of the activity will “just be a matter of who shows up
for the auctions,” he said. “Nobody else is going to be in the
market. Muni issuance has crested. Corporates have crested.
That really just leaves Treasuries.”

Near the end of an abbreviated, pre-holiday trading
session, the benchmark 10-year note (US10YT=RR: ) was down 11/32,
its yield rising to 3.40 percent from 3.35 percent late on
Wednesday.

Thirty-year bonds (US30YT=RR: ) slid 15/32, their yields
rising to 4.48 percent from 4.45 percent on Wednesday.
(Editing by Chizu Nomiyama)

TREASURIES-Prices cut before next week’s supply