TREASURIES-Prices gain slightly as stocks dip fuels safety bid
* Stocks fall on unconfirmed rumors of hedge fund selling assets * Fed minutes may contain clues on duration of Fed stimulus * Fall in housing starts, rise in PPI in Jan have little market impact * Fed buys Treasuries as part of latest stimulus program By Chris Reese NEW YORK, Feb 20 (Reuters) - U.S. Treasury debt prices made slight gains on Wednesday as weakness in stocks, worries over pending U.S. government spending cuts and global economic uncertainty fueled a safe-haven bid. While yields dipped, trade remained range-bound before the release of minutes of the Federal Reserve's January policy meeting later in the day. The market will be looking at the minutes for clues on the future of the central bank's bond-buying plans after the Federal Open Market Committee last month left in place its $85 billion-a-month stimulus. The Fed said then it needed to support employment even as it indicated a recent stall in U.S. economic growth was likely temporary. Treasuries began the day lower in price but turned around as stock losses deepened, with traders citing rumors in the market that a troubled hedge fund was selling assets. "The bond market got a little bit oversold -- a little bit anxious -- over the upcoming FOMC minutes, believing the Fed will confirm these fears that asset purchases are going to slow down sooner and that we could see an end to quantitative easing by the end of the year," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco. "The market is now coming around to less fear that is going to be the case," she said. Benchmark 10-year Treasury notes were trading 4/32 higher in price to yield 2.02 percent, down from 2.03 percent late Tuesday, while 30-year bonds were 8/32 higher to yield 3.20 percent from 3.21 percent. The 10-year yield has been bouncing in a 13-basis-point range in the past three weeks and market participants see little catalyst for now to break out of it, with activity relatively subdued before the FOMC minutes due at 2 p.m. EST (1900 GMT). The Fed will likely need to keep buying bonds until the end of this year given the still-feeble state of the U.S. labor market, Atlanta Fed President Dennis Lockhart told Reuters in an interview on Tuesday. Economists are split over whether the central bank will stop buying bonds this year. Under the program, the Fed on Wednesday bought $3.31 billion of Treasuries maturing May 2020 through February 2023. Treasuries prices were also generally supported by worries over U.S. spending cuts set to begin March 1, and concern over the outlook for Europe going into Italian elections later this month, Rupert said. Investors are mulling the potential economic impact of the $85 billion of government spending cuts set to begin next month if Republicans and Democrats do not move to avoid the automatic cuts. Optimism was not running high that the government will be able to stave off the so-called "sequestration." "We maintain that if Washington is able to piece together some type of compromise, it will not come until the eleventh hour and frankly we're not at all confident that is even a real possibility at this point," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut. The Treasuries market showed little impact from data showing groundbreaking on new U.S. homes fell in January, although new permits for construction rose to a 4-1/2 year high. The government also said U.S. producer prices rose in January for the first time in four months. "Nothing here is a market mover, and the (producer price index) numbers are basically static," said Steven Baffico, chief executive officer at Four Wood Capital Partners in New York.
- Tweet this
- Share this
- Digg this