TREASURIES-Bonds rise on hopes for more Fed purchases

Mon Jul 9, 2012 11:27am EDT

Related Topics

* Wall Street sees 70 pct chance of QE3-Reuters poll
    * Europe's debt woes add to safety bids on bonds
    * U.S. 10-year yield hovers near historic lows
    * Analysts see strong demand for week's supply


    By Richard Leong
    NEW YORK, July 9 (Reuters) - U.S. Treasury debt prices rose
on Monday and benchmark yields fell, hovering just above
historic lows, on bets that the Federal Reserve will embark on
large-scale bond purchases to stimulate a sluggish U.S. economy.
    Disappointing domestic job growth, together with Europe's 
debt crisis and China's slowing business activity, have
increased speculation the U.S. central bank is preparing to buy
more bonds to lower long-term interest rates in a bid to spur
borrowing and demand, analysts said.
    "Economic momentum is trending lower," said Sharon Stark,
chief fixed income strategist at Sterne Agee & Leach in
Birmingham, Alabama. "Traders are preparing for another round of
quantitative easing after three straight months of
below-consensus jobs growth."
    Wall Street economists see a 70 percent chance the Fed will
engage in a third bound of quantitative easing, nicknamed QE3,
according to a Reuters poll conducted shortly after the June
payrolls report on Friday. 
    The U.S. Labor Department said on Friday U.S. employers
added 80,000 jobs in June, below the 90,000 predicted by
economists polled by Reuters. 
    While jobs growth has slowed in recent months, some
investors reckoned economic conditions had not yet deteriorated
enough for the Fed to begin buying more Treasuries or
mortgage-backed securities.
    "It's not weak enough yet for the Fed to come in," said
Chris Orndorff, senior portfolio manager at Western Asset
Management Co. in Pasadena, California, which manages $447
billion in assets. "They have to save some ammunitions for
Europe."
    The protracted struggle for Spain and Greece to manage their
debt has rekindled investors' push into U.S. and German
government debt that are perceived as safer investments.
 
    "Europe is giving people another reason to buy bonds," Stark
said. "More and more money will flow into the U.S. bond market."
    In Asia, China's inflation slowed more than expected in
June, suggesting demand for its goods from Europe and the United
States was falling. 
    Benchmark 10-year U.S. Treasuries notes last
traded up 4/32 in price at 101-31/32 for a yield of 1.54
percent, down 1.4 basis points from late on Friday.
    The 10-year yield is about 10 basis points above the level
set on June 1, which was the lowest going back to the early
1800s, according to data gathered by Reuters.
    On lighter-than-usual trading volume, the 30-year bond
 was up 9/32 at 107-6/32 to yield 2.65 percent, down
1.3 basis points from Friday's close.
    With renewed appetite for bonds, the Treasury Department's
auctions of coupon-bearing debt should fare well, analysts said.
    The Treasury will sell $32 billion in three-year notes
 on Tuesday; $21 billion in 10-year debt on
Wednesday and $13 billion in 30-year bonds on
Thursday.
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