(Adds quotes, updates prices)
* Nerves about volatile stock markets seen helping bonds
* Month-end demand seen boosting fixed income
* Fed chief Powell's testimony in focus next week
By Karen Brettell
NEW YORK, Feb 23 (Reuters) - U.S. Treasury prices gained on Friday as uncertainty about recent stock market volatility helped boost demand for the bonds and as investors rebalanced portfolios ahead of month-end.
Continuing nerves about the direction of stocks led some investors to seek out lower-risk assets.
"There's been some substantial buying that seems to be sustaining amid concerns about the equity markets," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
"We're also entering the month-end rebalancing period and after the spurt of volatility we had in all markets, but particularly in equities, it may encourage some rebalancing towards fixed income," LeBas said.
Fixed-income index extensions this month are larger than normal, which may be driving more month-end activity.
"We're going to have an above average month-end extension," said Mike Lorizio, a senior fixed income trader at Manulife Asset Management in Boston. "I think some of that month-end buying is coming in here at levels that look relatively attractive."
Investors that were underweight bonds were also seen as repositioning after the two-month selloff.
Futures data shows that "some investor classes have got a bit toward extreme levels of underweight duration in the back-end, and I think we're seeing profit-taking or some reversing of that," Lorizio said.
Benchmark 10-year notes gained 14/32 in price to yield 2.868 percent. The yields have fallen from a four-year high of 2.957 percent on Wednesday.
Bonds were also supported on Friday by the completion of $258 billion in new supply this week, which was the second largest ever over a three-day period. Investors will turn their attention to Federal Reserve Chairman Jerome Powell's first semi-annual monetary policy testimony to Congress on Tuesday and Thursday, which will be watched for any update on the U.S. central bank's economic forecasts in light of the Trump administration's tax cuts and spending plans, and a recent uptick in inflation.
"It's not just the recent data, because in the short term it's very random, but on the Fed's level of confidence in inflation over the next six to 12 months," said LeBas, adding that inflation "will establish whether we see three or four rate hikes during the year."
Data next Thursday on personal income and spending inJanuary will give the next indication of price pressures in the economy.
(Reporting by Karen Brettell; Editing by Andrea Ricci)
Change vsCurrent
Nykyield Three-month bills 1.6125(+0.00) 1.641 Six-month bills 1.8 (-0.01) 1.841 Two-year note 100-01/32(+01/32) 2.238 Five-year note 100-02/32(+06/32) 2.613 10-year note 98-32/32 (+14/32) 2.868 30-year bond 96-29/32 (+27/32) 3.161
DOLLAR SWAP SPREADS
LASTChange U.S. 2-year dollar swap spread24.25 (-1.50) U.S. 3-year dollar swap spread22.25 (-0.75) U.S. 5-year dollar swap spread11.00 (-0.25) U.S. 10-year dollar swap spread0.50 (-0.75) U.S. 30-year dollar swap spread-19.00 (-1.50)))Keywords: USA BONDS/
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