TREASURIES-Bond prices rise on view on Fed purchases

Wed Jan 16, 2013 3:17pm EST

Related Topics

* U.S. December CPI keeps door open for monetary accommodation

* Fed's Beige Book shows moderate U.S. economic growth

* Bond recede from session highs as stocks pare losses

NEW YORK, Jan 16 (Reuters) - U.S. Treasury debt prices rose on Wednesday, prompted by bets the Federal Reserve will stick to its bond purchase program, which aims to cut unemployment, as long as inflation remains muted.

Benchmark yields fell for a fourth straight session on safe-haven bids linked to anxiety about a protracted fight in Washington over raising the $16.4 trillion federal borrowing limit, analysts said.

"It's the continued buying from the Fed which is bringing good support to the market," said Jason Rogan, director of Treasuries trading at Guggenheim Partners in New York.

The Fed on Wednesday bought $1.474 billion in federal debt maturing from February 2036 through November 2042, which was a part of its $45 billion monthly purchases of Treasuries.

While some investors have questioned the effectiveness of this third round of quantitative easing, dubbed QE3, many top Fed officials including Chairman Ben Bernanke have stated their support of it in recent days because the economy has not been expanding fast enough to bring down unemployment.

Moreover, the modest pace of business activity could easily be wiped out by fiscal disruption due to the political tension in Washington, analysts said.

The Fed's latest Beige Book, a collection of anecodotes on regional economic conditions, showed mild growth across the United States in recent weeks but it signaled no impetus that economic expansion will accelerate.

With this moderate growth, U.S. consumer prices barely grew in December. Analysts reckoned this climate allows the Fed room to keep buying bonds to hold down long-term borrowing costs and leave short-term policy rates near zero.

Benchmark 10-year notes rose 3/32 in price at 98-7/32 with their yields at 1.823 percent, down from 1.836 percent late on Tuesday.

Thirty-year bond prices increased 6/32 to 94-25/32, yielding 3.015 percent, down from 3.206 percent late on Tuesday.

Bond prices retreated from their earlier highs as Wall Street stocks pared their initial losses on strength in the bank and technology sectors.

FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article