January 10, 2019 / 7:05 PM / in 4 months

TREASURIES-Bonds pare price gains after soft 30-year bond auction

 (Adds Powell comments, auction results, updates prices)
    * Lack of concrete U.S., China trade deal disappoints
    * Fed's Powell sees "substantially smaller" balance sheet
    * Weak demand for Treasury's 30-year bond auction

    By Karen Brettell
    NEW YORK, Jan 10 (Reuters) - U.S. Treasury prices rose on
Thursday as stocks weakened in choppy trading, but pared price
gains after a soft 30-year bond auction and as Federal Reserve
Chairman Jerome Powell said the U.S. central bank will
"substantially" reduce the size of its balance sheet.
    Stocks were hurt after China said trade talks in Beijing
with the United States had established a "foundation" to resolve
differences, but gave virtually no details on key issues at
stake.                  
    After clawing their way back into the green, stocks fell
again when Powell said the Fed’s balance sheet will be
“substantially smaller” than it is now, while also reiterating
that the Fed can be patient about raising rates.             
    Powell’s comments on the balance sheet came as the Treasury
Department auctioned $16 billion in 30-year bonds to weak
demand, which sent longer-dated bond yields to session highs.
    The ratio of bids to the amount of 30-year bonds offered was
2.19, lower than the 2.31 at the 30-year auction in December.
                         
    The yield curve also steepened after minutes from the Fed’s
December meeting, released on Wednesday, showed that a range of
policymakers said they could be patient about future interest
rate increases and a few did not support the central bank's rate
increase that month.             
    “It was definitely a dovish tone to it, which has aided the
front end of the market,” said Justin Lederer, an interest rate
strategist at Cantor Fitzgerald in New York.
    Benchmark 10-year notes             gained 3/32 in price to
yield 2.719 percent, down from 2.728 percent late Wednesday. The
yield curve between two-year and 10-year notes               
steepened to 16 basis points, from 13 basis points early on
Wednesday.
    Two-year notes            are the most sensitive to interest
rate policy.

 (Editing by Steve Orlofsky and Tom Brown)
  
 
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