TREASURIES-Traders poised to cash in on curve-flatteners

* Treasury sells $11 bln in 10-yr inflation-linked bonds

* Traders see 108-105 as profit range for 10s-30s spread

* Bond prices fall, pare some losses on weak durable goods
(Recasts, adds quotes, Fed; updates prices; changes byline)

By Emily Flitter

NEW YORK, March 24 (Reuters) – U.S. Treasury traders were
watching the spread between 10-year and 30-year yields for a
profit-taking opportunity on Thursday, as prices in the
Treasury market eased slightly in light trading.

The spread between 10-year yields and 30-year yields has
been on a narrowing trend since reaching a seven-week wide of
118 basis points on March 16.

“Between 108 and 105 I think you might see some people
taking profits on that trade,” said John Spinello, Treasury
bond strategist at Jefferies & Co. in New York.

The spread was most recently 110, as the 10-year yield rose
slightly in light selling.

Selling in 10s accelerated after the Treasury Department’s
$11 billion auction of 10-year inflation-protected securities
drew a high yield that was nearly five basis points higher than
the simultaneous open market yield for TIPS.

Treasury analysts said the aggressive dealer bidding at the
auction was likely an indicator of short-covering, rather than
a direct statement on inflation expectations in the
marketplace.

Nevertheless, the spread between 10-year nominal yields and
TIPS yields widened to 247 basis points after the auction.

“Positioning should hopefully be cleaner after today and
the most of the real yield concession ahead of auction has been
erased,” wrote George Goncalves, head of U.S. rates strategy at
Nomura Securities in New York, in a note to clients.

“Recent media reports have suggested inflation expectation
is still on investors’ minds despite the Federal Reserve’s
belief that commodity shocks will be ‘transitory.’ Given TIPS
valuations have largely priced this in, we expect to remain
tactical and buy breakevens on dips in the weeks ahead.”

TIPS breakevens have rallied since September in line with
rising oil prices, as political instability in the Middle East
increased concerns that crude oil supply could decline.

Cash Treasury prices fell but pared some of their early
losses after data pointed to a decline in U.S. manufacturing
last month.

New orders for long-lasting U.S. manufactured goods
unexpected fell in February, reversing a strong showing in
January. For more, see [ID:nN24107359]

“I’m a bit surprised given the price of oil and the
uncertainty in Libya. I guess we’re giving back some of the
gains from last week still,” said James Newman, head of
Treasury and agency trading at Keefe, Bruyette and Woods in New
York.

Benchmark 10-year notes (US10YT=RR: Quote, Profile, Research) were last down 13/32 in
price to yield 3.41 percent, up from 3.35 percent late on
Wednesday. The notes had traded as high as 3.39 percent before
the data.

The price of 30-year bonds (US30YT=RR: Quote, Profile, Research) fell 11/32 to yield
4.48 percent, up from 4.46 percent at Wednesday’s close.
(Additional reporting by Karen Brettell; Editing by Dan
Grebler)

TREASURIES-Traders poised to cash in on curve-flatteners