TREASURIES-Treasuries fall ahead of supply

* Treasury prices fall after Fed buys, ahead of supply

* Fed buys $2.07 bln in notes maturing 2021-2027

* Prices recover some losses on GDP revision
(Adds comments, updates prices)

By Karen Brettell

NEW YORK, Dec 22 (BestGrowthStock) – U.S. Treasury prices fell in
light trading on Wednesday after the Federal Reserve completed
its last purchases until next week, and ahead of new supply.

The market briefly pared some early losses, however, after
third-quarter gross domestic product was not revised up as much
as expected.

Trading was choppy ahead of the Christmas holiday, but held
a weak tone as dealers prepared for new sales of 2-year, 5-year
and 7-year notes scheduled for next week.

The Federal Reserve also bought $2.07 billion in debt
maturing between 2021 and 2027, its last purchase until next
Tuesday, as part of its bond purchase program.

“I think the realization is that we have to come in next
week and take down the supply,” said James Combias, head of
government bond trading at Mizuho Securities in New York.

“It’s very thin and nobody is around and it’s going to be a
situation where they are going to have to back the market up a
little bit in order to take down the auctions,” he said.

The benchmark 10-year note (US10YT=RR: ) was last down 09/32
in price to yield 3.44 percent, up from 3.30 percent late on
Tuesday.

Five-year notes (US5YT=RR: ) fell 06/32 in price to yield
1.99 percent and 30-year bonds (US30YT=RR: ) dropped 13/32 in
price to yield 4.45 percent.

GDP GROWTH DISAPPOINTS

Treasuries briefly took back losses and were little changed
after the Commerce Department said gross domestic product
growth was revised up to an annualized rate of 2.6 percent from
2.5 percent, as a rise in the pace of inventory accumulation
was offset by downward revisions to consumer spending. For
details, see [ID:nN21260995]

“The downward revision in the consumer (spending data) is
really problematic compared to where expectations have been in
the past few weeks,” said Brian Yelvington, analyst at Knight
Capital Group in Greenwich, Connecticut.

“Traditionally it’s the consumer that leads us out of a
recession, and we had expectations that the consumer was not
only spending, but spending in a manner that suggested they
would continue to spend. This revision shows that the market
probably got a little bit excited about that,” he said.

Short-dated rates have been pricing in an expectation that
the Fed will increase benchmark rates by the end of 2011,
though analysts view the market as oversold and likely to
retrace as the GDP data also reflected low inflation.

“Fed funds futures have been pricing in quite a bit of
chance of a rate hike in 2011,” said Yelvington. “That has
dissipated over the last week or so, and it should dissipate
more on this number because we had core PCE come in very low
and obviously a pretty major revision down, indicating that
inflation is not an issue.”

The Fed’s preferred inflation measure, the personal
consumption expenditures price index, excluding food and
energy, rose at an annual rate of 0.5 percent instead of 0.8
percent, the smallest increase since records began in 1959.
(Editing by Dan Grebler)

TREASURIES-Treasuries fall ahead of supply