TREASURIES-U.S. debt prices slightly up ahead of 5-yr sale

* Foreign buyers eyed in $35 billion five-year auction

* Volume is down since more bond dealers have become banks

* Solid 2-yr auction on Monday offers hope for 5-yr demand

By Emily Flitter

LONDON, Dec 28 (BestGrowthStock) – The prices of U.S. Treasury
securities rose slightly on Tuesday in extremely light volume
ahead of a five-year note auction that analysts said was the
day’s main event.

CRT Capital Group in Stamford, Connecticut, reported volume
at 24 percent of the 10-day moving average at 8 a.m. EST (1300
GMT).

William O’Donnell, head of U.S. Treasury strategy at RBS
Securities in Stamford, Connecticut, said volume was lower on
Tuesday than the same day in recent years.

“The selloff since QE2 has chastened many,” he said,
referring to the sharp selling in the Treasury market after the
U.S. Federal Reserve announced a new program to buy Treasuries
and stimulate the economy on Nov. 3.

“The newest capital regulations for banks have pushed
balance sheets to a new low ebb,” he added.

Major bond dealers, including Goldman Sachs and Morgan
Stanley, now have Dec. 31 as their year-end. Before the
financial crisis forced Goldman and Morgan to become bank
holding companies, their year-end dates fell in the fall.

Thus, O’Donnell said, the activity that banks must
undertake to square up their books for the year-end has
intensified, with more firms doing the same thing at the same
time.

5-YR AUCTION WILL TEST DEMAND

The Treasury Department is set to auction $35 billion in
five-year notes at 1 p.m. EST (1800 GMT), an event analysts
said would be the main driver of price movement for Tuesday.

Monday’s sale of two-year notes attracted strong demand,
lifting hopes that Tuesday’s five-year sale could go well
despite the dearth of market participants during the
post-Christmas trading sessions.

In a note to clients on Tuesday, George Goncalves, head of
U.S. rates strategy at Nomura Securities in New York, pointed
to concerns among market participants that foreign buyers,
typically a large source of demand for five-year notes, were
losing interest in Treasuries.

“We believe that much of these worries are unwarranted,” he
said. “Although foreign central banks slowed down the pace of
their Treasury purchases recently, there is little suggesting
further sustained selling in the works.”

However, unlike the lead-up to Monday’s two-year sale,
during which the two-year note saw a healthy concession through
selling, the five-year note’s price was holding steady. The
five-year yield (US5YT=RR: ) was 2.03 percent.

Meanwhile, the two-year note (US2YT=RR: ) was up 4/32 in
price and yielding 0.70 percent. The benchmark 10-year Treasury
note (US10YT=RR: ) added 1/32 in price to yield 3.33 percent,
down from a close of 3.34 percent on Monday.

The 30-year bond (US30YT=RR: ) was off 7/32 in price and
yielded 4.42 percent, up from 4.40 percent at Monday’s close.
(Editing by Jeffrey Benkoe)

TREASURIES-U.S. debt prices slightly up ahead of 5-yr sale