TREASURIES-Prices slip, but 30-year bond suffers less

* 30-year bond outperforms as 10- 30-yr curve flattens

* 10- 30-yr curve record steepness early in session

* $32 bln sale of 3-years draws strong demand

(Recasts lead, adds quote, updates prices)

By Ellen Freilich

NEW YORK, Nov 8 (BestGrowthStock) – U.S. Treasuries slipped on
Monday as traders cut prices on supply, but the 30-year bond
suffered less than shorter-term securities as traders finally
saw some relative value in the long-term bond.

Early in the session, the U.S. Treasury yield curve
steepened to record levels as investors, mindful that the
Federal Reserve planned few purchases of the Treasury’s longest
maturity, shunned the 30-year bond.

But profit-taking on the curve steepening trade eventually
let losses on longer-dated debt prices shrink, slightly
narrowing the gap between 10- and 30-year yields.

Prices were cut modestly across the maturity range,
however, both before and after the U.S. Treasury sold
three-year notes at 1 p.m. (1800 GMT), the first of three note
auctions scheduled this week.

The $32 billion auction drew a good bid, as expected.

John Briggs, U.S. interest-rate strategist at RBS
Securities in Stamford, Connecticut, called the three-year
auction results “fine,” and said the large portion of the sale
taken by dealers could help flatten the yield curve.

David Ader, head of government bond strategy at CRT Capital
Group in Stamford, Connecticut, said price cuts before the
auction gave the sale a firm tone. He pointed to the “decent”
3.26 ratio of bids received over those accepted.

Ader said the market was balancing out the crosscurrents of
supply coming from the Treasury’s auctions against the prospect
of supply being drained from the market by the purchases the
Fed will make as it tries to stimulate U.S. economic growth.

Unwinding hedges against corporate debt deals was another
characteristic of the day’s trading, participants said.

The difference between the yields of benchmark 10-year U.S.
Treasury notes (US10YT=RR: ) and 30-year bonds (US30YT=RR: )
reached a record wide of 159 basis points before the
profit-taking began and traders started buying the longer-dated
bonds, which began to look appealing compared to other Treasury

After the Fed said last week it would buy $600 billion in
assets, the bond had to adjust to fear the stimulus program
might create too much inflation and the fact the Fed planned to
buy very few 30-year bonds relative to shorter maturities, said
Robert Tipp, chief investment strategist at Prudential Fixed
Income in Newark, New Jersey.

Tipp said the difference between 10- and 30-year yields
could begin to shrink if the market decides “the massive risk
premium between 10s and 30s is more than adequate to compensate
for the risk that the Fed could go wrong in its program.”

The 30-year bond outperformed other Treasury note prices on
Monday for the first time since the Fed’s announcement.

Marty Mitchell, chief market technician at Stifel Nicolaus
in Baltimore, said some Treasury traders had already begun to
place bets related to the Fed’s announcement, scheduled for
Wednesday, of a specific plan for the $600 billion Treasury
purchasing program.

“The five-year sector is probably going to see the brunt of
the buying,” Mitchell said.

Five-year notes (US5YT=RR: ) were down 6/32 in price to yield
1.13 percent, up from 1.09 percent at Friday’s close.

Benchmark 10-year note prices were down 6/32, its yield
rising to 2.56 percent from 2.55 percent late on Friday.

Thirty-year bonds slipped 2/32 in price, their yields
edging up to 4.13 percent from 4.12 percent on Friday.
(Additional reporting by Chris Reese and Emily Flitter)

(Editing by Andrew Hay)

TREASURIES-Prices slip, but 30-year bond suffers less