TREASURIES-Yields fall, prices climb as Bernanke, QE3 in focus

* Investors look ahead to Bernanke speech on Friday
* Benchmark yields dip from three-month highs last week
* Fed buys $1.83 billion of longer-dated Treasuries

By Chris Reese
NEW YORK, Aug 27 (Reuters) - U.S. Treasury debt yields fell
on Monday as investors focused on whether Federal Reserve
Chairman Ben Bernanke will hint at a third debt purchase program
when he speaks at the end of the week.
Investors are awaiting Bernanke's highly anticipated speech
on Friday in Jackson Hole, Wyoming. He has used this event the
previous two years to flag the Fed's intention on more easing.
Expectations that the Fed will announce a third round of
quantitative easing, known as QE3, have increased since minutes
from the central bank's August meeting, released last week,
showed that Fed action might be imminent unless the economy
showed significant improvement.
"Everybody is looking ahead to Friday's speech from Fed
Chairman Bernanke -- we will see if the market is disappointed
or not," said Mary Ann Hurley, vice president of fixed-income
trading at D.A. Davidson & Co in Seattle.
Speculation the Fed will move ahead with more economic
stimulus put a bid into Treasuries on Monday in slow,
late-summer trade, with U.S. benchmark 10-year Treasury notes
gaining 12/32 in price to yield 1.65 percent, down
from 1.69 percent late Friday.
Benchmark yields have fallen from three-month highs of 1.86
percent early last week, the 200-day moving average and a level
where there is a fair amount of buying support for the debt.
"After the minutes last week there is a pretty good
assumption that Bernanke will allude to some sort of QE3," said
Jason Rogan, director of Treasuries trading at Guggenheim
Partners in New York. "If he doesn't talk about QE3, that would
presumably disappoint the markets," Rogan added.
If Bernanke does not hint at new bond purchases, bond yields
could climb back to recent yield support levels, said Rogan.
A gloomy assessment of the business climate in Germany set
an early tone of bidding for safe-haven U.S. bonds. Business
sentiment dropped for a fourth month in a row as the euro zone
crisis and a slowdown in China took their toll.
Markets have also been unsettled by rising talk of a Greek
euro zone exit, after a conservative ally of German leader
Angela Merkel said the country should leave the currency bloc by
next year.
The Fed also bought $1.83 billion in Treasuries due between
February 2036 and August 2042 on Monday as part of its Operation
Twist program designed to lower long-term borrowing rates.
The Treasury this will week sell $99 billion in new
coupon-bearing debt, comprising $35 billion in two-year notes on
Tuesday, $35 billion in five-year notes on Wednesday and $29
billion in seven-year notes on Thursday.
Thirty-year bonds on Monday traded 27/32 higher
in price to yield 2.76 percent, down from 2.80 percent late
Friday.