December 21, 2016 / 7:45 PM / a year ago

TREASURIES-Prices edge higher as volumes thin ahead of holiday

(Updates prices)
    * Fed rate policy next year in focus
    * Thursday economic data includes GDP, personal income
    * Treasury to auction 2-, 5-, 7-year notes next week

    By Karen Brettell
    NEW YORK, Dec 21 (Reuters) - U.S. Treasury debt prices
gained slightly in light trading volumes before the Christmas
holiday with no major economic data on Wednesday, as investors
evaluated how many times the Federal Reserve is likely to raise
interest rates next year.
    "We've been trading in a fairly tight range the last couple
of days with low volumes. It's very holiday like trading," said
Dan Mulholland, head of Treasuries trading at Credit Agricole in
New York.
    "I think people are trying to assess how the next year is
going to start off," Mulholland said.
    U.S. benchmark 10-year notes rose 7/32 in price
to yield 2.54 percent, down from 2.57 percent late on Tuesday.
    Yields have soared since Donald Trump's victory in the U.S.
presidential election last month, as investors bet that he would
implement new fiscal stimulus that would boost growth and
inflation.
    The Fed was also more hawkish than expected at its December
meeting last week, indicating that it may raise rates three
times next year. 
    That helped to send 10-year note yields to a more than
two-year peak and two-year note yields to their highest levels
since 2009.
    Investors are evaluating whether the recent backup in yields
makes it a good time to buy bonds, of if yields are likely to
rise much further.
    "In assessing the risk of where the market is, the risk of
disappointment from what people are counting on Trump to do in
terms of fiscal stimulus is probably a little bit to the
downside rather than overdelivering on the upside," said
Mulholland.
    "With that in mind we do think the market is a little bit
oversold at present," Mulholland said.
    New supply of two-year, five-year and seven-year notes next
week, however, could add pressure to bonds as the auctions will
come in a holiday-shortened week when many traders will be on
vacation.
    Data on Thursday, including the third estimate of
third-quarter gross domestic product and personal income and
spending, will be watched for further indications about the
strength of the U.S. economy.

 (Editing by Diane Craft)

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