Prices of benchmark 10-year notes were down 9/32, their yields rising to 2.01 percent.

Ten-year yields above 2 percent have recently drawn buyers so traders had said losses in Treasuries could be limited, particularly before a three-day holiday weekend. The U.S. bond market will be shut on Monday for U.S. Presidents Day holiday.

“The primary reason for the moves is, once again, news from overseas,” said Kevin Flanagan, executive director and fixed-income strategist at Morgan Stanley. “There’s a growing sense Greece will ultimately get a deal and heading into the long weekend, shorts have been covered.”

German Chancellor Angela Merkel, Italy’s Mario Monti and caretaker Greek Prime Minister Lucas Papademos all expressed optimism over an accord during a three-way conference call, Monti’s office said. German officials have been especially skeptical over previous Greek austerity proposals to bring its debt down.

Bailout funds will be disbursed only after a debt restructuring occurs. Greece needs the funds before March 20, when it must pay back debt worth 14.5 billion euros.

After falling on Thursday, partly on prospects for Greece, 30-year bonds were down 6/32, pushing their yields up to 3.15 percent.

Bonds trimmed losses as stocks edged up Friday after touching a nine-month high on Thursday. .N

In the euro zone debt market, riskier assets did better. Italian and Spanish sovereign debt yields dropped while safe-haven German government bonds came under pressure. Bund futures fell 62 ticks. <GVD/EUR>

With U.S. bond markets closed Monday when the European finance ministers are scheduled to meet, “people are selling in advance of that,” said John Canavan, a market analyst at Stone & McCarthy Research Associates.

Some of the pressure on Treasuries also stemmed from dealers clearing inventory ahead of three debt auctions next week. The U.S. Treasury is scheduled to sell $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday.

That selling might be slightly more pronounced than usual because the note auctions begin on the first day of the holiday-shortened trading week. Normally, they begin on the second day.

The Treasury estimated $60.186 billion in coupon securities held by the public would mature on February 29.

Canavan said 30-year bonds and 10-year notes found bids near Thursday’s lows.

“The key levels are 2.09 percent on the 10-year and the 3.18 percent level on the 30-year bond that had been the high yield since November 1 — prior to last week,” he said.

“A pullback in equities before the weekend, in conjunction with technical support, could provide Treasuries a slightly better bid this afternoon,” Canavan said.

The government’s report on January consumer prices arrived largely as expected, eliciting little reaction.

The Consumer Price Index rose 0.2 percent last month, which was just below forecasts for a 0.3 percent increase.

The 10-year breakeven rate, the gap between yields on 10-year TIPS and 10-year Treasuries, edged up just over 3 basis points from late Thursday to 2.27 percent, according to Tradeweb. It was the widest since August 11.

The 10-year TIPS yield was last bid at minus 0.244 percent, according to Tradeweb.

(Editing by Jeffrey Benkoe)

On Wall Street, stocks edged up as Treasury prices fell,
allowing their yields to rise.

Prices of benchmark 10-year notes were down 13/32, their
yields rising above 2 percent to 2.03 percent. Ten-year yields
above 2 percent have recently drawn buyers so traders said
losses in Treasuries could be limited, particularly before a
three-day holiday weekend. The U.S. bond market will be shut
Monday for Presidents Day.

European leaders were optimistic an agreement can be reached
on Greece at Monday’s Eurogroup meeting, the Italian prime
minister’s office said. Bailout funds will be disbursed only
after a debt restructuring occurs. Greece needs the funds before
March 20, when it must pay back debt worth 14.5 billion euros.

After falling on Thursday, partly on hopes for a Greece
deal, 30-year bonds were down 19/32, pushing their yields up to
3.17 percent.

In contrast, riskier assets did better as optimism about
Greece bolstering investor sentiment. Stock indexes rose about
0.2 percent in morning trade.

The same advantage for riskier assets played out in the euro
zone debt market. Italian and Spanish sovereign debt yields
dropped while safe-haven German government bonds came under
pressure. Bund futures fell 68 ticks.

An imminent Greek deal weighed on Treasuries and bunds, said
William O’Donnell, head government securities trader at RBS in
Stamford, Connecticut.

Still, O’Donnell said major support for the 10-year Treasury
yield lay at 2.10 percent and that the “challenged” global
economic outlook remained supportive for Treasuries.

The U.S. Federal Reserve’s recent decision to
keep short-term interest rates exceptionally low at least
through late 2014 favored the compression of the yield curve
over time, he added.

Analysts at Barclays Capital, however, were more upbeat
about the global economic outlook and prospects for riskier
assets, a theme that would not favor safe-haven assets like
Treasuries.

“Despite markets nervously awaiting developments in Europe,
risky assets have performed well so far today with equities
rallying and relatively cyclical currencies outperforming,”
Barclays analysts said in a research note. “An important reason
why is increasingly convincing evidence that the recovery in
global growth is well supported.”

Some of the pressure on Treasuries also stemmed from dealers
clearing inventory ahead of three debt auctions next week. The
U.S. Treasury is scheduled to sell $35 billion in two-year notes
on Tuesday, $35 billion in five-year notes on Wednesday and $29
billion in seven-year notes on Thursday. Treasury estimated
$60.186 billion in coupon securities held by the public would
mature on Feb. 29.

The government’s report on January consumer prices arrived
largely as expected, eliciting little reaction.

The Consumer Price Index rose 0.2 percent last month, which
was just below analysts’ expectations for a 0.3 percent
increase.

The 10-year breakeven rate, the gap between
yields on 10-year TIPS and 10-year Treasuries, edged up just
over 3 basis points from late Thursday to 2.27 percent,
according to Tradeweb. It was the widest since Aug. 11.

The 10-year TIPS yield was last bid at minus 0.244 percent,
according to Tradeweb.

U.S. Treasuries slipped early in the session after a new
drop in new U.S. jobless claims offered another sign of labor
market improvement. The data affirmed the economy was enjoying
at least a modest recovery and encouraged investors to move into
riskier assets like stocks.

Euro zone officials said a Greek bailout should be approved
on Monday, further weakening demand for
safety.

Prices of benchmark 10-year notes were down 21/32 near
midday, their yields at 2 percent. Thirty-year bonds slid
1-7/32; their yields rose to 3.15 percent.

Still, analysts said the drop in new jobless claims to a
near four-year low was the dominant influence.

“It’s mostly that jobless claims were lower than expected,”
said Eric Stein, vice president and portfolio manager at Eaton
Vance Management in Boston.

A rise in housing starts in January and an increase in the
core producer price index, which excludes food and energy items,
were also slightly bearish for bonds.

The Labor Department’s weekly report showed new jobless
claims fell to their lowest in nearly four years to a seasonally
adjusted 348,000, down 13,000 from the prior
week.

The weekly claims data was the “highlight” of the strong
U.S. data, said Alan Ruskin, head of G10 currency strategy at
Deutsche Bank in New York, supporting the view that payrolls can
grown by 200,000 per month, the “‘lift-off’ pace for
self-sustaining growth.”

The U.S. Treasury said it would sell $35 billion in two-year
notes on Tuesday, $35 billion in five-year notes on Wednesday
and $29 billion in seven-year notes on Thursday. It estimated
$60.186 billion in coupon securities held by the public would
mature on Feb. 29.

Meanwhile, the Federal Reserve bought $1.81 billion of
Treasuries maturing between February 15, 2036 and February 15,
2042. Dealers submitted $6.07 billion of Treasuries for
consideration.

Despite Thursday’s retreat on stronger economic data,
Treasuries have enjoyed a relatively supportive tone this week,
said Ian Lyngen, government bond strategist at CRT Capital.

“The flight to quality flows aided by the global
uncertainties have clearly benefitted Treasuries and kept
10-year yields anchored well below the 2 percent level,” he
said.

From a technical point of view, the “former minor support in
10 year yields (2.10 percent) may now be looked at as major
support given the Federal Reserve’s updated policy guidance,”
said William O’Donnell, head of U.S. rate strategy at RBS,
referring to the Fed’s decision to keep short-term interest
rates low at least until late 2014. “Buy dips to this support
level,” he said. The equivalent support level in 30-year bond
yields is 3.20 percent, he added.

Jobless claims fell to a near four-year low in the latest
week and housing starts rose more than expected in January,
though groundbreaking on single-family units fell 1.0 percent,
the government said.

Overall producer prices rose less than forecast, but the
core producer price index, which excludes food and energy items,
rose 0.4 percent due to a 2 percent rise in drug prices.

Benchmark 10-year notes, unchanged before the data were
released, were down 5/32 afterwards, yielding 1.95 percent.
Thirty year bonds, up 6/32 before the data, were down 3/32
afterwards, yielding 3.10 percent.

The most bond bearish news however, was the Labor
Department’s weekly report showing new jobless claims fell to
their lowest in nearly four years to a seasonally adjusted
348,000, down 13,000 from the prior week.

The weekly claims data was the “highlight” of the strong
U.S. data, said Alan Ruskin, head of G10 currency strategy at
Deutsche Bank in New York, supporting the view that payrolls can
grown by 200,000 per month, the “‘lift-off’ pace for
self-sustaining growth.”

Markets might have reacted more strongly to the “Goldilocks”
data were it not for the “wolf still knocking at Europe’s door,”
said Ruskin, evoking images from two Grimm’s fairy tales.

Indeed, Europe, most particularly the negotiations over a
debt bailout for Greece, overshadowed the more positive economic
data.

The euro fell to a three-week low on Thursday as euro zone
officials postponed a decision on giving more aid to Greece
until Monday.

“With the Monday meeting of the EU finance ministers still
targeted for a ‘resolution’ to this Greek default crisis there
remains ample opportunity for officials to spook or assure the
markets as they attempt to manage expectations,” said Ian
Lyngen, government bond strategist at CRT Capital.

But markets are “increasingly suffering from a degree of
Greek fatigue,” Lyngen added.

Later this morning the Treasury Department will announce the
size of next week’s auction trio. Analysts expect the government
to sell $35 billion in two-year notes, $35 billion in five-year
notes, and $29 billion in seven-year notes.

Lyngen noted an especially high amount – $60.2 billion – in
notes are maturing, leaving just $38.8 billion of net new cash
required to cover the sale.

Despite Thursday’s retreat on stronger economic data,
Treasuries have enjoyed a relatively supportive tone throughout
the week, Lyngen said.

“The flight to quality flows aided by the global
uncertainties have clearly benefitted Treasuries and kept
10-year yields anchored well below the 2 percent level,” he
said.

From a technical point of view, the “former minor support in
10 year yields (2.10 percent) may now be looked at as major
support given the Federal Reserve’s updated policy guidance,”
said William O’Donnell, head of U.S. rate strategy at RBS,
referring to the Fed’s decision to keep short-term interest
rates low at least until late 2014. “Buy dips to this support
level,” he said. The equivalent support level in 30-year bond
yields is 3.20 percent, he added.

In morning trade, benchmark 10-year notes were
last up 1/32 in price, yielding 1.93 percent.

“Greek headlines seem to be a dominant theme,” said David
Ader, head of government bond strategy at CRT Capital Group in
Stamford, Connecticut.

Early in the session, news that euro-zone officials were
considering delaying all or part of a financial bailout package
for Greece briefly pressured riskier assets and aided safe-haven
U.S. debt.

Treasuries and safe-haven German debt futures have been
sensitive to signals from the Greece bailout process.

Pledges from Greek Conservative party leader Antonis Samaras
to commit to tough austerity measures looked positive for the
bailout financing, weighing slightly on Treasuries.

“The Greek bailout continues to hog the headlines,” but the
variety of signals left Treasuries “pretty close to home,” said
William O’Donnell, head of U.S. rates strategy at RBS in
Stamford, Connecticut.

At the same time, investors are trying to handicap the
effects on U.S. interest rates from firmer U.S. economic data
and weaker measures on European growth, he said.

Data on Wednesday showed U.S. industrial output was
unexpectedly flat in January, but the second straight month of
gains in manufacturing pointed to underlying strength in the
economy.

From a technical point of view, O’Donnell said, support for
the benchmark 10-year Treasury was at a 2.10 percent yield and
key support around 2.40 percent.

“Resistance was rejected at 1.80 percent, the mid-December
low print,” he said.

“Despite the weaker-than-expected headline, this report
(showed) a significant recent acceleration in manufacturing
output,” said David Sloan, economist at IFR Economics, a Thomson
Reuters unit.

A higher-than-forecast reading on the February New York Fed
manufacturing index elicited little reaction.

The Fed will release the minutes of its Jan. 24-25 Federal
Open Market Committee meeting later in the session. Last month,
Fed Chairman Ben Bernanke left the door open to more large-scale
asset purchases if U.S. unemployment remained high and inflation
eased.

The central bank completed two such “quantitative easing”
programs since 2009 in which it bought a combined $2.3 trillion
in long-term securities. The purchases, as well as near-zero
interest rates since late 2008, were designed to encourage
borrowing, investment and U.S. growth.

The S&P 500 index retreated from near a seven-month high
after weaker-than-expected January U.S. retail sales data curbed
investors’ appetite for risky assets. The data
added to concerns linked to Moody’s ratings cuts on six
euro-zone countries late Monday.

The Bank of Japan also boosted its asset buying program by
$130 billion to promote growth. It set a goal of 1 percent
consumer price inflation to pull the economy out of deflation.

“These are relatively supportive developments from a
flight-to-quality persepctive,” said Ian Lyngen, government bond
stragtegist at CRT Capital.

Benchmark 10-year Treasuries notes rose 8/32 in
price, their yields easing to 1.95 percent from 1.98 percent
late on Monday. Thirty-year bond prices rose 18/32
in price, their yields easing to 3.09 percent from 3.12 percent
late on Monday.

GREECE’S DEBT CRISIS

The Greek debt epic, despite lawmakers’ approval of severe
austerity measures on Sunday, still retains themes that are
“bullish for the Treasury market,” said Lyngen.

If European Union finance ministers push back ratification
of the Greek bailout, that would add uncertainty and be bullish
for bonds, he said.

That 10-year yields now trade below Friday’s close despite
the weekend vote in Greece, argues that the market needs more
reassurance besides austerity promises from Greece, Lyngen said.

“Wednesday’s EU finance ministers meeting in Brussels to
ratify the bailout is still a risk, and despite the commitment
to spending cuts by the current Greek government, it is unclear
what happens after April elections (in Greece) if an attempt is
made to renegotiate (the bailout pact),” Lyngen said.

“Moreover, the background of the slower economic growth
implied by deleveraging and austerity remains a … downward
influence in Treasury yields,” he said.

The Greek economy shrank 7 percent year-on-year in the
fourth quarter of 2011, the nation’s statistics office said on
Tuesday.

Protests and civil unrest associated with the Greek
austerity steps and the potential focus on credit risks in
Portugal also contributed to the bullish underpinnings for
Treasuries,” Lyngen said.

Dozens of buildings were burned, damaged, or looted in
Greece on Sunday amid deep anger about the impact of the
belt-tightening.

Stuck in its worst recession since the 1970s and with
unemployment at record highs, Portugal has come under the
scrutiny of financial markets in recent weeks on concerns that
it could follow Greece in seeking more rescue funds, or even
need to restructure its debts.

The S&P 500 index retreated from near a seven-month high
after weaker-than-expected January U.S. retail sales data curbed
investors’ appetite for risky assets. The data
added to concerns linked to Moody’s ratings cuts on six
euro-zone countries late Monday.

The Bank of Japan also boosted its asset buying program by
$130 billion to promote growth. It set a goal of 1 percent
consumer price inflation to pull the economy out of deflation.

“These are relatively supportive developments from a
flight-to-quality persepctive,” said Ian Lyngen, government bond
stragtegist at CRT Capital.

Benchmark 10-year Treasuries notes rose 8/32 in
price, their yields easing to 1.95 percent from 1.98 percent
late on Monday. Thirty-year bond prices rose 18/32
in price, their yields easing to 3.09 percent from 3.12 percent
late on Monday.

GREECE’S DEBT CRISIS

The Greek debt epic, despite lawmakers’ approval of severe
austerity measures on Sunday, still retains themes that are
“bullish for the Treasury market,” said Lyngen.

If European Union finance ministers push back ratification
of the Greek bailout, that would add uncertainty and be bullish
for bonds, he said.

That 10-year yields now trade below Friday’s close despite
the weekend vote in Greece, argues that the market needs more
reassurance besides austerity promises from Greece, Lyngen said.

“Wednesday’s EU finance ministers meeting in Brussels to
ratify the bailout is still a risk, and despite the commitment
to spending cuts by the current Greek government, it is unclear
what happens after April elections (in Greece) if an attempt is
made to renegotiate (the bailout pact),” Lyngen said.

“Moreover, the background of the slower economic growth
implied by deleveraging and austerity remains a … downward
influence in Treasury yields,” he said.

The Greek economy shrank 7 percent year-on-year in the
fourth quarter of 2011, the nation’s statistics office said on
Tuesday.

Protests and civil unrest associated with the Greek
austerity steps and the potential focus on credit risks in
Portugal also contributed to the bullish underpinnings for
Treasuries,” Lyngen said.

Dozens of buildings were burned, damaged, or looted in
Greece on Sunday amid deep anger about the impact of the
belt-tightening.

Stuck in its worst recession since the 1970s and with
unemployment at record highs, Portugal has come under the
scrutiny of financial markets in recent weeks on concerns that
it could follow Greece in seeking more rescue funds, or even
need to restructure its debts.

(Editing by Theodore d’Afflisio)

Demands for steeper fiscal cuts from Greece’s creditors
rekindled fear that Greece would not be able to grow enough to
pay its creditors, both private and public.

The pre-weekend scramble for Treasuries reversed the
previous day’s decline on optimism that Greece would soon
receive a second bailout. That expectation pushed the 30-year
bond yield to its highest levels since late October.

“It’s all about Greek headlines now. Markets (see) another
face-off and generally speaking, investors don’t like being
short Treasuries when these things are going on,” said David
Keeble, global head of interest rates strategy at Credit
Agricole Corporate & Investment Bank in New York.

In the latest development, Eurogroup chair Jean-Claude
Juncker set three conditions for Greece to receive a second
bailout worth 130 billion euros ($170 billion).

Juncker said the Greek parliament must ratify the package
when it meets on Sunday and a further 325 million euros of
spending reductions must be identified by Wednesday, after which
euro zone finance ministers would meet again.

Finally, Juncker said, the leaders of the coalition parties
must give strong political assurances that the program will be
implemented.

Facing elections as soon as April, Greece’s party leaders
have been loath to accept the lenders’ tough conditions, which
are certain to be unpopular with voters.

Markets fear that without more aid, Greece would default on
its debt, causing financial chaos akin to the global credit
crisis triggered by the collapse of Lehman Brothers in 2008.

The protracted and often contentious talks between Greek and
European leaders have fueled concerns about the long-term future
of the euro zone and its monetary union, analysts say.

“The future seems to be almost unraveling as quickly as an
elusive deal is coming together,” said Robert Tipp, chief
investment strategist at Prudential Fixed Income in Newark, New
Jersey, which manages $327 billion.

Reacting to this, 10-year Treasury notes rose
22/32. Their yields slipped below 2 percent again to 1.965
percent, up 3.5 basis points from where they stood a week ago.

The 30-year bond auctioned on Thursday was up
1-11/32 point, its yield easing to 3.11 percent, down two basis
points from where they stood a week ago.

Federal Reserve Chairman Ben Bernanke said depressed house
prices and sales were a serious drag on the economic recovery, a
view echoed by Cleveland Fed President Sandra Pianalto, a voter
this year on the Fed’s policy-setting panel.

U.S. economic data, which mainly have strengthened in recent
weeks, took a back seat to news on Greek’s debt deal.

But that could change next week when bond investors will
absorb a large helping of fresh economic data, including the
closely watched retail sales report due on Tuesday.

Economists polled by Reuters estimate retail sales rose a
healthy 0.7 percent in January; 0.5 percent if January’s robust
auto sales are excluded. To accurately assess the report, it
will be necessary to pay attention to any revisions of November
and December retail sales, said Cary Leahey, economist at
Decision Economics in New York.

“Even if the January number disappoints, if it follows a
huge upward revision to December, people will pay attention to
the implied level of sales,” he said.

A robust level of retail sales will give people more
confidence in the idea that better jobs numbers will lead to
more spending and still more employment “so you have a
self-reinforcing recovery,” Leahey said.

Early regional reports on February manufacturing will also
get attention, along with what is expected to a robust report on
January industrial production.

“Markets are watching for evidence of slower orders from
Europe because reduced exports to Europe could cut U.S. growth
by as much as half a percentage point this year,” Leahey said.

Producer and consumer prices indices due on Thursday and
Friday, respectively, are expected to reflect some headline
inflation, mainly due to higher gas prices, and subdued core
price increases.

Even a core rate of inflation that tops the Fed’s official
target is likely to cause little stir since Bernanke has said he
is willing to accept some inflation as long as the unemployment
rate remains so high, Leahey said.

Deutsche Bank Securities managing director and chief U.S.
economist Joseph LaVorgna said Wednesday’s release of minutes
from the Fed’s Jan. 24-25 meeting should offer few surprises.
After all, Bernanke gave an in-depth press conference
immediately after that meeting.

But Leahey said the minutes could provide some nuance on how
comfortable or uncomfortable various committee members were with
the Fed’s pledge to keep short-term interest rates near zero
through the end of 2014.

Greece and its private-sector creditors are converging toward a debt swap deal that would cause a loss of 65 to 70 percent for private bondholders, a banking official close to the talks told Reuters on Friday.

News that U.S. sales of existing homes in December were slightly lower than forecast had no impact, but recent upbeat data on the economy have been negative for Treasuries.

“The back-up in the U.S. Treasury yields seems due to a combination of developments beginning with yesterday’s jobless claims figures (which showed a sharp drop in the newly jobless) and reports that the Greek negotiations with private sector investors may yield results after all,” said Kevin Flanagan, chief fixed-income strategist and managing director at Morgan Stanley Smith Barney.

Benchmark 10-year notes fell 8/32, their yields rising to 2.01 percent from 1.97 percent late on Thursday. Those losses were in line with slippage in German bunds, another safe-haven asset. Bund futures slipped 83 ticks to 138.12.

Thirty-year bonds fell 25/32, their yields rising to 3.08 percent from 3.03 percent late on Thursday.

A banking official close to the Greek debt talks told Reuters the new bond Greece would issue to its private-sector creditors would likely have a 30-year maturity, a grace period of 10 years, and a stepped-up coupon structure that would average about 4 percent.

“Europe is calmer. Their auctions have gone okay, and the euro has responded,” said David Ader, head government bond strategist at CRT Capital Group.

But Ader said the “myopic focus” on rumors about Greece underscored the market’s inconsistent price action.

That inconsistency puts the focus on whether technical support levels will hold, he said. Ten-year yields have a “channel top” at 2 percent and their 100-day moving average plus a 38.2 percent retracement of the range in place since late October all converge around 2.03 percent, Ader said.

The Treasury will sell a total of $99 billion in two-, five- and seven-year notes next week and Ader said the market could simply be building in a price concession before supply.

Analysts said the outcome of Greece’s negotiations with private creditors over a debt swap could affect investor interest in auctions of German and Dutch long-term government bond sales, raising the question of whether there might be less appetite for U.S. debt in next week’s Treasury auctions as well.

(Reporting by Ellen Freilich; Editing by Andrew Hay)

Goldman Sachs Group Inc’s (GS.N: Quote, Profile, Research, Stock Buzz) fourth-quarter profit fell 56 percent but the investment firm beat Wall Street expectations by cutting costs and taxes, pushing its shares 6 percent higher. U.S. banks focused on business and consumer lending did better in the fourth quarter, reporting increased demand for loans from businesses.

The International Monetary Fund estimates it needs to raise $600 billion in new resources to lend to countries to help them with the repercussions of the euro zone debt crisis, IMF sources told Reuters on Wednesday.

The IMF reports weighed slightly on Treasuries prices, said David Ader, head government bond strategist at CRT Capital Group in Stamford, Connecticut.

Meanwhile, stocks and bond yields moved in lock-step, with yields rising along with stocks.

“The contour of the last five or 20 days on a minute-to-minute basis is that you see Treasury yields go down when stocks go down and go up when stock prices go up,” said Robert Tipp, chief investment strategist for Prudential Fixed Income with $240 billion in assets under management.

But other factors are at work, he said.

“We’re clearly in the recovery mode from the European crisis,” he said. “In the Lehman crisis, the recovery started in the interbank lending market and moved through credit and got to stocks and currencies last.

“In the current crisis, we’ve seen recovery – ironically – arrive first in some of the peripherals like Ireland from the middle of last year and we may have seen the ultimate crest in many of the other peripherals in the fourth quarter of 2011 along with the bottoming of the stock market,” he said.

Elsewhere on the euro zone debt crisis front, private sector creditors return to the negotiating table on Wednesday in Athens in a new attempt to cut Greece’s debt in time to avert a disorderly default in March. The loss for investors, which is at the heart of the negotiations, is now estimated at around 60 to 70 percent depending on the coupon, discount rate and maturity.

While investors’ preference for stocks on Wednesday worked to the detriment of Treasuries, Byron Carson, managing director, capital markets for Principal Global Investors, said U.S. Treasury yields maintained a “pretty tight” range.

“People see the Fed being on hold for a long time so volume is a lot lower than normal for this time of year,” he said. “One large trade can move the market.”

Benchmark 10-year Treasury notes slipped 6/32, their yields rising to 1.87 percent from 1.84 percent on Tuesday.

Carrying out its ‘Operation Twist,’ a plan to keep downward pressure on long-term Treasury yields to help stimulate the economy, the Federal Reserve sold $8.74 billion in short-term debt maturing between November 2013 and February 2014. It is expected to buy $4.6 billion in longer-dated Treasuries – maturing from February 2020 to November 2021 – in the afternoon.

“Our view is that the global economic outlook will remain challenged and that the … compression of the yield curve will continue,” said William O’Donnell, head of U.S. Treasury strategy at RBS Securities, referring to the narrowing differences between short- and long-term yields. “Our activist Fed will keep market rates low for a long time,” he said.

In that environment, the appropriate trading strategy is for longer-term investors to use back-ups as an opportunity to buy longer-dated maturities, he said.

“Sell into resistance levels that lie nearby and play the ranges,” he said, citing resistance beginning at 1.867 percent to 1.80 percent on the 10-year note yield.

The U.S. Treasury Department reported a big rebound in purchases of U.S. fixed-income securities in November, noted Thomas Simons, money market economist at Jefferies & Co.

Foreign investors purchased $65 billion in long-term fixed income securities: $54 billion in Treasury notes and bonds, $6.2 billion in agencies and mortgage-backed securities, and $4.8 billion in corporate bonds.

Treasury purchases were split about evenly between private investors and official institutions as the former bought $30.3 billion and the latter purchased $23.7 billion.

Reports on U.S. producer prices and industrial production evoked no discernible reaction in the cash bond market but the yield on U.S. 10-year Treasury Inflation Protected Securities touched a record low on Wednesday on the unexpected news that U.S. producer prices fell in December.

Conversely, the 10-year TIPS breakeven rate, a gauge of long-term inflation expectations, turned higher because the report showed core producer prices rose more than expected, signaling that underlying inflation is not as benign as previously thought.

The bid yield on 10-year TIPS touched minus 0.244 percent, surpassing the previous intraday record of minus 0.2150 percent set on Tuesday, according to Tradeweb.

The 10-year breakeven rate, or the spread between 10-year TIPS yield and regular 10-year Treasury yield, was quoted at 2.05 percent, up nearly 2 basis points.

The Labor Department said on Wednesday its seasonally adjusted index for prices received by farms, factories and refineries fell 0.1 percent. Economists had expected an increase of 0.1 percent.

The PPI core rate, which excludes volatile food and energy prices, rose 0.3 percent last month, the biggest rise since July. It was above economists’ forecast for a 0.1 percent gain.

(Additional reporting by Richard Leong; Editing by James Dalgleish)