TREASURIES-U.S bonds inch up on Fed stimulus talk

LONDON Thu Aug 23, 2012 5:30am EDT

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LONDON Aug 23 (Reuters) - U.S. Treasuries edged higher in Europe on Thursday, with safe-haven demand underpinned after minutes to the Federal Reserve's latest meeting revived talk of more monetary stimulus.

Improving economic data released after the Fed's August meeting had cooled speculation that the central bank would announce a new bond purchase programme at its next meeting in September, spurring a sell-off in Treasuries.

They rallied on Wednesday after the minutes to this month's meeting showed the Fed was likely to deliver another round of economic stimulus "fairly soon", unless the U.S. economy improves considerably.

U.S. T-note futures were last up 10/32 at 133-20/32 while cash 10-year T-notes were last up 3/32 in price to yield 1.685 percent, about 1 basis point lower from late New York levels.

Further gains were, however, seen limited before Fed Chairman Ben Bernanke's speech at an annual conference in Jackson Hole late next week, which will be closely scrutinised for signs on whether the bank will act in September.

"FOMC minutes have spurred expectations of another round of QE (quantitative easing) but the market is waiting for Bernanke's speech at Jackson Hole when he is expected to unveil further details on the Fed's options. The next employment report would also be crucial for the Fed," RIA Capital Markets strategist Nick Stamenkovic said.

"A further rally in Treasuries will depend on signs of weakness in the U.S. economy and confirmation from Bernanke that they are about to pull the trigger."

Stamenkovic expects benchmark yields to be hemmed into the 1.60-1.85 percent range where they have been trading over the past two weeks.

Traders were also wary of taking big positions in the market before U.S. jobs data next month and a European Central Bank meeting in early September - when the bank is expected to give details on its latest plan to stem the euro zone debt crisis - as well as the Fed's policy meeting on Sept. 12-13.

"It's difficult to see this rally lasting for long. A lot depends on what Bernanke says at Jackson Hole and what's coming up in September," a trader said.

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