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U.S. bonds post small gains

NEW YORK -- U.S. bonds posted small gains, their first rise in a week Friday, as participants covered short positions heading into the weekend. But trading was light with the overwhelming bulk of the market's attention still focused on next week's Federal Open Market Committee meeting.

Traders said the market got a corrective bounce after in overnight trade the September bond contract made a fresh low for the current downtrend at 113 5/32 and the yield on the bellwether 30-year bond backed up almost to 6.20 percent."We got beaten up pretty badly yesterday and once it held there was probably a little buying," a coupon trader said.

He cited buying in the 10-year overnight, which he said was rumored to be a Japanese account, as well as some buying tied to the pricing of HSBC Holdings' $1 billion 10-year corporate deal.

But as the day progressed, the buying dried up, traders said. They pointed to the typical lack of participation on summer Fridays exaggerating some afternoon selling.

As the liquidity faded, "everyone was just throwing in the towel," the coupon trader said.

According to GovPX pricing service, just over $40 billion Treasuries changed hands Friday. As of 3 p.m. EDT, volume was 14 percent below the average Friday in the past month.

Also hampering liquidity was the fact investors continued to stay sidelined ahead of the Federal Reserve's open market committee meeting next Tuesday and Wednesday, players said.

Analysts said it is almost a certainty that the Fed will hike rates by 25 basis points at the meeting. What the market is waiting for now is any indication the Fed gives about the possibility for more rate hikes down the line, they said.

To that end, participants will focus on the statement accompanying the expected hike and on whether the Fed maintains its tightening bias, participants said.

The Fed has traditionally taken off its bias -- at least for one meeting -- when it moves rates. But analysts said this time around the Fed may elect to leave the bias in place.

Michelle Laughlin of Prudential said if the Fed maintains its tightening bias, "I think everyone will quickly assume they're going to go (hike rates) again in August."