TREASURIES-Prices down before Fed statement

* Prices lower before Fed statement

* Fed seen holding rates near zero, talking exit strategy

* S&P downgrades Spain, heightens worries over euro zone
(Updates market action, adds new quotes)

By Ellen Freilich

NEW YORK, April 28 (BestGrowthStock) – U.S. Treasury debt prices
fell on Wednesday as traders took profits after a rally early
in the week and hedged bets before an imminent policy statement
from the Federal Reserve.

Traders and analysts expect the Federal Open Market
Committee, the Fed’s policy-setting group, to hold interest
rates near zero and repeat its vow of an extended period of
very low rates.

But there has been talk the central bank could refine its
“extended period” period pledge or drop hints on ways to reduce
its balance sheet in a policy statement expected after its
two-day meeting at about 2:15 p.m. (1815 GMT).

Such moves would suggest a more upbeat economic outlook and
hurt safe-haven bonds.

Prices of long-dated maturities briefly hit session lows
just after the Treasury sold $42 billion in new five-year
notes, but those added losses were quickly reversed as traders
waited for a Fed statement concluding its policy meeting.

Thomas Simons, money market economist at Jefferies & Co in
New York, said expectations were for a set of weak auctions
this week, “especially considering the rally in response to the
woes of the EU and the usual uncertainty surrounding the FOMC
meeting this afternoon.”

But in contrast to those expectations, the five-year
auction results were “quite solid,” Simons said, with the ratio
of bids received to those accepted 2.75, in line with January
and February auctions of five-year notes, but above recent
averages due to the weakness in March and December auctions.

Indirect bids took the largest share of the auction – 48.9
percent – since January, while the direct takedown was also
well above average. At 14.3 percent, it was the largest share
since December 2005 and the third largest on record, he said.

Simons said the “large and volatile” direct bid for the
auctions “has made bidding these auctions a difficult game for
(primary) dealers to play.

The government will conclude this week’s debt sale with a
$32 billion offering of seven-year notes on Thursday.

Gains scored on Wall Street after Tuesday’s sell-off
weighed a bit on Treasuries, damping demand for safe-haven U.S.
government debt.

Reported steps toward a deal to aid Greece “has hurt
Treasuries and helped stocks and spread products,” said Jeff
Given, portfolio manager at MFC Global Investment Management in

Officials have been trying to hammer out a deal to assist
Greece, with fresh reports on Wednesday it will receive much
more than initially expected as the EU and IMF seek to prevent
the crisis spreading.

But nervousness remained over Europe’s fiscal woes after
Standard & Poor’s cut Spain’s debt rating following downgrades
to those of Greece and Portugal the previous day.

Earlier, the euro hit a one-year low against the dollar,
and the yield on two-year Greek government debt touched 38
percent as S&P’s downgrade of Spain stoked concerns the euro
zone’s debt problems could spread.

In other cash trading, the benchmark 10-year note was down
15/32. Its yield, which moves inversely to price, was 3.75
percent, up 6 basis points from late Tuesday.

The gap between two- and 10-year note yields shrank to 269
basis points, compared with 272 basis points late Tuesday.

On Wall Street, two broad market indexes were higher.

Investing Analysis
(Additional reporting by Richard Leong; Editing by Andrew

TREASURIES-Prices down before Fed statement