December 29, 2017 / 7:28 PM / in 10 months

TREASURIES-Prices end year stronger, busy data week ahead

 (Recasts with price move, updates prices)
    * Busy week of data expected in the new year
    * Five-year yields have largest annual increase since 2013
    * Bond market closed early before New Year's Day holiday

    By Karen Brettell
    NEW YORK, Dec 29 (Reuters) - Year-end demand helped U.S.
Treasuries prices end the year stronger on Friday, before a
heavy week of data, though volumes were light before Monday's
New Year's Day holiday.
    Treasuries are typically in demand at the end of the month,
quarter and year as investors rebalance their portfolios and
extend their bond duration.
    Declining stock markets also boosted demand for the
safe-haven debt.             
    The economic calendar was light this week, though data next
week will include numerous manufacturing and service sector
releases in addition to the employment report for December.
    The data and any news around efforts by the Trump
administration to boost growth will be evaluated for their
outlook for the economy and how many interest rate increases are
likely during the year.
    "Next week will be very busy," analysts at NatWest Markets
wrote in a note on Friday. "There is a ton of top tier data out
as well as the potential for political news if Trump kicks the
year off with a strong drive for infrastructure spending."
    Friday's gains came after the Treasury Department this week
sold $88 billion in new short and intermediate-dated supply to
mostly below average demand.                          
            
    Short- and intermediate-dated notes, which are highly
sensitive to interest rate increases, have underperformed this
year as investors priced in expectations of improving economic
momentum.
    Five-year note yields            posted their largest annual
increase since 2013 with a 15 percent rise to 2.21 percent.  
    Two-year note yields            have risen 58 percent during
the year, their largest increase since 2014, to 1.89 percent.
    The yield curve between two-year and 10-year notes
               fell to 50 basis points on Wednesday, the
flattest level since Oct. 2007.
    The Federal Reserve has indicated that an additional three
increases are likely next year, though interest rate futures
traders are pricing in only two.
    The U.S. central bank will release minutes from its December
meeting, when it raised rates for the third time this year, on
Wednesday.
    An uptick in Treasury supply, which is expected to initially
be concentrated in bills and shorter-dated notes, is also a key
focus for investors as the U.S. Treasury makes up for declining
bond purchases by the Fed.
    The bond market closed early on Friday at 2 p.m. EST (1900
GMT) and will be closed on Monday for the New Year's Day
holiday.

 (Editing by Phil Berlowitz; Editing by Richard Chang)
  
 
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