TREASURIES-U.S. bonds rally after supply, Fed policy mulled
* Market gets late boost from article on Fed's likely course * Upbeat U.S. sales, jobless data briefly curb bond gains * Fed buys $3.29 bln in Treasuries due in 2020 to 2023 * TIPS swoon; 10-year breakeven rate slips near 2 percent By Ellen Freilich NEW YORK, June 13 (Reuters) - U.S. Treasury debt prices rose on Thursday after the Treasury concluded the last of its three coupon auctions of the week and investors began to back away from the idea that the Federal Reserve was likely to cut back soon on monetary accommodation. Early gains were limited after data showed a drop in new jobless claims in the latest week, evidence of strength in the economy that would argue for less Fed accommodation rather than more. U.S. debt yields had already risen to four-month highs on the notion that the Fed might start to pare its bond purchases and pursue a less stimulative monetary policy. But the last of the week's three Treasury coupon auctions -- this one of 30-year bonds after the sale of three- and 10-year notes earlier in the week, gave the market a breather from new supply, and Treasuries, already up on the day, held their ground. Treasury prices rose even as stocks rallied. Bonds got a late afternoon lift after The Wall Street Journal published a story saying an adjustment in the Fed's bond-buying program did not mean that the U.S. central bank would end "all at once" or that the Fed was "anywhere near raising short-term interest rates." The Bank of Japan's decision earlier this week to not embark on further stimulus added to trader anxiety about the willingness of central banks to aid their economies. "The market read the ... Wall Street Journal article as telegraphing that the Fed won't raise the federal funds rate anytime soon, that there's still a lot of slack in the economy that they are concerned about," said Wilmer Smith, co-manager of the Wilmington Broad Market Fund. "And that if the Fed does taper its current $85 billion a month in purchases, it wouldn't suddenly halt purchases, but it might reduce the amount, maybe buy $65 billion in securities a month. "The article seemed to suggest that the market had gotten a little ahead of itself in thinking the Fed would curtail its monthly purchases entirely," he said. Benchmark 10-year Treasury notes rose 22/32 in price, yielding 2.15 percent, down from 2.23 percent late on Wednesday. The 10-year yield touched a 14-month high of 2.293 percent two days ago. The 30-year bond rose a point, its yield easing to 3.32 percent from 3.375 percent. Treasuries prices briefly retreated from their initial highs after a steeper-than-expected drop in weekly jobless claims and a surprisingly strong rise in May retail sales. Within the U.S. government debt sector, Treasury inflation protected securities were on track for another beating as bets on weak inflation and reduced Fed purchases have hammered the sector, sending the 10-year TIPS yield into positive territory for the first time since January 2012 earlier this week. TIPS have lost 5.79 percent year-to-date, according to the TIPS total return index compiled by Barclays. The yield gap on 10-year TIPS and 10-year regular Treasuries, which the Fed monitors as a gauge of investors' inflation expectations, narrowed further on Thursday to 2.03 percent. The 10-year inflation "breakeven" rate has not been below 2 percent since late December 2011. The Fed bought $3.294 billion in government debt whose maturities range from August 2020 through February 2023.
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