TREASURIES-Bonds steady before Bernanke testimony

Thu Jul 18, 2013 9:27am EDT

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* Treasuries stable before Bernanke testimony
    * Investors looking for new signs on Fed's tapering plans
    * Treasury to sell $15 billion in 10-year TIPS

    By Karen Brettell
    NEW YORK, July 18 (Reuters) - U.S. Treasuries were steady on
Thursday before Federal Reserve Chairman Ben Bernanke was due to
give testimony before Congress for a second day, with investors
focused on whether he will give any new clues over when the U.S.
central bank will begin reducing its bond purchases.
    Ten-year yields fell to their lowest levels in two weeks
after Bernanke told a House of Representatives panel on
Wednesday that the Fed's plans to scale back its bond purchases
later this year are not set in stone, and still dependent on the
strength of the economy. 
    The Senate will now have the opportunity to grill Bernanke
over his monetary policy, after members of the House panel asked
few questions specific to the Fed's bond purchase program.
    "We'll have to see if any questions are specifically
targeted towards tapering and the exit strategy of the Fed
towards the latest QE," said Jason Rogan, managing director in
Treasuries trading at Guggenheim Partners in New York.
    Benchmark 10-year notes were last down 2/32 in
price to yield 2.50 percent. 
    Treasuries have stabilized after a dramatic selloff that
sent 10-year note yields to two-year highs of 2.76 percent on
July 8. They jumped by more than a full percentage point from
around 1.60 at the beginning of May.
    "There has been a process of normalization to the market in
the last couple of weeks after that capitulation trade," Rogan
said.
    A number of top Fed officials stressed in speeches after the
selloff that the Fed will pull back its purchases slowly and
will keep rates anchored at record low levels for a long time to
come, in an effort to soothe investors and reduce market
volatility.
    "I think the markets are beginning to understand our
message," Bernanke said on Wednesday.
    Demand for inflation-linked bonds will be tested later on
Thursday when the Treasury auctions $15 billion in 10-year
Treasury Inflation-Protected Securities (TIPS).
    TIPS have stabilized after being one of the worst performers
in the recent selloff. Investors had paid a premium to buy TIPS
on the expectation that Fed bond purchases would spur higher
inflation, but that hasn't yet happened and inflation is instead
running well below the Fed's 2 percent target.
    Consumer price data on Tuesday showed that prices were
stabilizing, easing some fears that inflation would continue to
fall. The Consumer Price Index (CPI) increased 0.5 percent in
June, the largest increase since February, after nudging up 0.1
percent in May, though gasoline prices accounted for about two
thirds of that.
    Treasuries had little reaction to data on Thursday that the
number of Americans filing new claims for jobless benefits
dropped more than expected last week to its lowest level in four
months.
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