December 31, 2013 / 5:32 PM / 4 years ago

TREASURIES-Prices dip on year's last trading day

* Volumes light ahead of holiday
    * 10-year Treasury yields hover just below 3 percent level
    * Index shows bonds having worst year since 1994
    * Year ahead to include Yellen leadership of Fed

    By Luciana Lopez
    NEW YORK, Dec 31 (Reuters) - Prices for U.S. Treasuries
dipped on Tuesday in light volumes, with investors seen unlikely
to take large positions as they closed out their books on the
last trading day of the year.
    Bonds are notching their worst year since 1994. The Barclays
U.S. Aggregate Index is down 1.93 percent year to date
on a total return basis through Monday. 
    While yields on the benchmark 10-year Treasury note rose,
they remained around the 3 percent level, also breached last
week after the U.S. Federal Reserve earlier this month said it
would slow its massive bond-buying program.     
    In addition, the bond market will close early on Tuesday
ahead of the New Year's Day holiday on Wednesday. That holiday
closure helped keep trade volumes thin on Tuesday.
    "I'd be surprised to see anything major, but it is month
end, quarter end," said Justin Lederer, an interest rate
strategist at Cantor Fitzgerald in New York.
     The 10-year Treasury note slipped 7/32 in price
on Tuesday to yield 3.002 percent, from 2.976 percent on Monday.
That yield on Tuesday briefly touched its highest since July
2011, with light pre-holiday trading exacerbating moves.
    The 10-year yield has jumped this year by about 125 basis
points on the recovery in the world's biggest economy and the
resulting pull back in stimulus by the Fed. 
    With the Fed anchoring the front end of the curve by
suggesting short-term rates are likely to stay lower for perhaps
years yet, long-term Treasuries saw a particularly painful year:
the 20+ year Treasury index sank by 13.93
percent.
    Bond volatility also spiked earlier in the year as the Fed
hinted as an exit to its quantitative easing program of bond
buying. But as that tapering has come to pass, volatility has
settled well below its mid-year levels.   
    The Fed will see further changes early in 2014. Fed Vice
Chair Janet Yellen is expected to be confirmed by the Senate to
take the reins from departing chairman, Ben Bernanke. A final
vote on her confirmation is set for Jan. 6. 
    "There are going to be a lot of personnel changes at the
Fed," said Thomas Simons, an economist at brokerage Jefferies &
Co, noting also changes in the vice chair and other regional
positions.
    "I think that the tone is still going to remain basically
the same as it was in 2013 and prior," he added. "Yellen
definitely shares a lot of the core views that Bernanke does."
    Yellen is perceived as dovish, emphasizing the importance of
employment. She has been a strong advocate of the Fed's
aggressive measures in recent years to bolster the economy.
    That could help keep policy at the Fed loose for years yet,
with short-term interest rates near zero as inflation pressures
remain subdued. 
    At 7.0 percent, the unemployment rate - though at a
five-year low - remains well above the level Fed policymakers
would like to see.

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