* Prices rise, 10-year yields trade around 2 percent
* Focus remains on likelihood of Fed tapering purchases
* Market will close early for Memorial Day holiday weekend
* Treasury sells $99 bln in 2-, 5-, 7-year notes next week
By Karen Brettell
NEW YORK, May 24 (Reuters) - U.S. Treasuries prices rose on
Friday as traders evaluated the likelihood of the U.S. Federal
Reserve pulling back on bond purchases this year and whether the
recent selloff was overdone.
Benchmark 10-year Treasuries yields traded around the key 2
percent level, falling below it at times.
The notes have generally held above 2 percent yields since
Fed Chairman Ben Bernanke said Wednesday the U.S. central bank
may pull back on its bond purchases in the coming few meetings
if data shows the economy is gaining steam.
Investors are now grappling with whether or not the dramatic
yield increase this month is exaggerated relative to the pace of
economic improvement, or whether yields are likely to continue
to climb on stronger growth and a more hawkish turn by the Fed.
"Now the market has heard Bernanke and seen the minutes, and
we're seeing some better data, the market is going to start to
decide where they think the Fed is going, sooner than later,"
said Jason Rogan, managing director of Treasuries trading at
Guggenheim Partners in New York.
"As of the right now, the move of the market has been
interpreted that Bernanke's comments, although maybe taken a
little bit out of context, give the impression that the Fed is
willing to at least announce tapering over the next couple of
meetings, and that, by itself, might be enough to push us to a
little bit higher yields," he said.
Ten-year notes were last up 5/32 in price to
yield 2.00 percent, after earlier rising to 2.03 percent on data
that showed that orders for long-lasting U.S. manufactured goods
rose more than expected in April.
The notes yields have increased from as low as 1.88 percent
on Wednesday, before Bernanke's comments, in huge trading
volumes. Around $400 billion in Treasuries traded in the U.S.
Thursday, after more than $600 billion changed hands Wednesday.
"No one can afford to sit around and not really contemplate
these big questions. Once your decision becomes there is more
risk than I thought you're going to retarget prices," said Jim
Vogel, an interest rate strategist at FTN Financial in Memphis,
Tennessee.
The question of how much higher yields should trade, if the
Fed ends or reduces its purchases, is now the key issue for
traders and investors.
"That's the million-dollar question. It's so difficult to
fully appreciate how much of these low rates is because of the
Fed buying action," said Guggenheim's Rogan.
Ten-year yields have surged from 1.61 percent at the
beginning of May on optimism about the economy, a move that some
analysts think is an overreaction relative to the data.
The next key report will be this month's jobs data, due to
be released in two weeks.
Rogan expects Treasuries will remain rangebound before that
report, with 10-year note yields unlikely to break above support
at around 2.08 percent, where the debt had traded at their high
yields in March.
The Treasury will sell $99 billion in new coupon-bearing
debt next week, including $35 billion in two-year notes on
Tuesday, $35 billion in five-year notes on Wednesday and $29
billion seven-year notes on Thursday.
The U.S. bond market will close at 2:00 p.m. EDT on Friday,
and will be closed Monday for the Memorial Day holiday.
