TREASURIES-Bond prices rise on Fed purchase, Bernanke

Mon Jan 14, 2013 5:08pm EST

Related Topics

* Fed's purchases support bids for long-dated bonds
    * Benchmark yields fall to lowest in about 1-1/2 weeks
    * Top Fed officials back Treasuries buy for now
    * Bernanke sees ultra-loose policy needed to help economy


    By Richard Leong
    NEW YORK, Jan 14 (Reuters) - U.S. government debt prices
inched higher on Monday with benchmark yields near their lowest
levels in about 1-1/2 weeks on the Federal Reserve's purchase of
long-dated bonds and safe-haven bids due to weaker stock prices.
    The bond market enjoyed a late uptick after Fed Chairman Ben
Bernanke offered no hints the central bank will back away from
its ultra-loose monetary policy to support a still-fragile U.S.
economic recovery.
    "Some accounts were getting long going into this week. You
had some hedge funds buying earlier," said Carl Lantz, chief 
U.S. interest rate strategist with Credit Suisse in New York.
    On Monday, the Fed bought $1.47 billion in Treasuries with
maturities ranging from February 2036 to November 2042, part of
its $45 billion monthly purchases of government securities aimed
to lower unemployment.
    The U.S. central bank has also been buying $40 billion in
mortgage-backed securities per month since September with the
goal of stimulating the housing market, whose recovery has
gained traction since late 2012.
    This third round of quantitative easing has been dubbed QE3.
    With the possibility of the economy picking up and stoking
inflation, the Fed's huge holdings of bonds complicate future
efforts to reduce them in a timely manner.
    Bernanke, at an event at the University of Michigan,
downplayed the Fed's $2.9 trillion balance sheet as a liability,
adding that the central bank has ample tools for its exit
strategy. 
    Benchmark U.S. yields climbed to 8-month highs near 2
percent in the first week of 2013 after minutes of the Fed's
December meeting showed several policymakers wanted to scale
back its purchases of Treasuries and mortgage-backed securities 
before year-end.
    But worries about the fight in Washington to raise the $16.4
trillion debt ceiling and disappointing company earnings have
revived the appetite for Treasuries.
    The U.S. Treasury Department said late Monday the United
States should run out of tools to avoid a default between
mid-February and early March. 
    "That could cause a flight-to-quality and cause rates to go
lower," said Bill Irving, a portfolio manager at Fidelity
Investments in Merrimack, New Hampshire, who oversees about $45
billion in bonds.
    Benchmark U.S. 10-year Treasury notes finished
6/32 higher in price, yielding 1.844 percent after touching a
low of 1.831 percent earlier. The 10-year yield ended at 1.866
percent on Friday.
    On Wall Street, the three major stock indexes were narrowly
mixed in late trading, paring their early losses. 
    Earlier, Chicago Fed President Charles Evans said the U.S.
economy is expected to grow by 2.5 percent in 2013, improving to
3.5 percent growth in 2014. Speaking at the Asian Financial
Forum in Hong Kong, Evans forecast the U.S. unemployment rate
would be 7.4 percent this year, and about 7 percent in 2014.
 
    San Francisco Fed President John Williams said the central
bank will need to continue with its bond purchases for "well
into" 2013 to lower borrowing costs and
unemployment. 
    Atlanta Fed chief Dennis Lockhart said later in a separate
event that the Fed's open-ended bond purchases are not "without
bound," adding that QE3 is not "QE Infinity."
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