Bonds ease ahead of Fed, auction

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NEW YORK (Reuters) -- U.S. Treasurys fell Wednesday in volatile trading dominated by repositioning ahead of an auction of five-year notes and the Federal Reserve's upcoming policy statement.

The Fed's policy statement is due around 2:15 p.m. and investors are eagerly awaiting its views on how the economic recovery is shaping up and how long the U.S central bank will keep rates near zero to foster growth.

However, the market also reflected its nervousness amid the week's record $104 billion in Treasury auction, which continues with $37 billion in 5-year notes coming to market on Wednesday. The results are due around 1 p.m.

This auction will be followed by $27 billion in 7-year notes on Thursday. Meanwhile, strong business investment data, reflected by durable goods orders, bolstered hopes an economic recovery was nearer.

"Bond prices got whacked on durable goods orders and bounced from the bottom," said Ward McCarthy, managing director and economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

"Positions are probably messy with two auctions coming up and also the FOMC policy statement coming this afternoon. That all has something to do with it."

The benchmark 10-year Treasury note was last down just 2/32 in price, yielding 3.64% versus Tuesday's close of 3.63%.

After briefly turning flat on the day, the 30-year Treasury bond was last down 12/32 on the day, yielding 4.38% versus Tuesday's close of 4.36%. Earlier it was down a full point on the day.