TREASURIES-U.S. bond prices fall on upbeat factory, claims data
* No groundbreaking policy news from Bernanke testimony * Weekly U.S. jobless claims fall to lowest since May * U.S. 10-year TIPS has positive yield for first time since 2011 * U.S. to sell $99 billion coupon-bearing supply next week By Karen Brettell and Richard Leong NEW YORK, July 18 (Reuters) - U.S. Treasuries prices fell on Thursday as encouraging data on jobless claims and factory activity supported the view the economy may be strong enough for the Federal Reserve to pare back bond purchases. Fed Chairman Ben Bernanke's second day of testimony before U.S. lawmakers about monetary policy produced no groundbreaking insights on when it might reduce $85 billion monthly bond-buying stimulus and subsequently increase short-term interest rates. Ten-year yields fell to their lowest level in two weeks after Bernanke told a House of Representatives panel on Wednesday that the Fed's plans to scale back purchases of Treasuries and mortgage-backed securities later this year are not set in stone and still depend on the strength of the economy. He stuck to basically the same message before the Senate Banking Committee on Thursday. "He stayed on message both days. The market was little moved today on Bernanke and more on the data," said David Lafferty, chief investment strategist at Natixis Global Asset Management in Boston, which oversees about $785 billion. The Philadelphia Federal Reserve Bank's index on business activity in the Mid-Atlantic region rose to 19.8, its highest level in more than two years, topped economists' forecast of 7.8. "This is an encouraging sign heading into the second half of the year. Looking at June and July, we are seeing an improvement in the manufacturing sector," said Ryan Sweet, a senior economist at Moody's Analytics at West Chester, Pennsylvania. Earlier, the government reported weekly total initial filings for jobless benefits unexpectedly fell to 334,000 last week, the lowest since early May. Improved readings on manufacturing and jobs, together with Bernanke's perceived dovish remarks, propelled the Dow and Standard & Poor's 500 stock indexes to record highs, adding to selling in Treasuries, analysts said. In late New York trading, benchmark 10-year notes last traded 12/32 lower in price to yield 2.536 percent, up 4.5 basis points from late on Wednesday. The 30-year bond fell 29/32 in price with a yield of 3.633 percent, up 5.6 basis points from Wednesday. The Treasuries market has 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. In an bid to calm investors and reduce market volatility, 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 near zero for a long time. In addition to historic high unemployment, Bernanke and other policymakers have raised the risk of deflation, a downward price spiral that crippled Japan for a decade, as a factor that would keep Fed to maintain a loose policy stance. With Bernanke's congressional testimony over, traders will likely turn their focus to the stock market, next week's $99 billion in coupon-bearing supply and economic data. "There's a bit of Fed burnout. The market has assimilated much of the Fed's view," Natixis' Lafferty said. Demand for inflation-linked bonds emerged on Thursday when the U.S. Treasury Department sold $15 billion in 10-year Treasury Inflation-Protected Securities (TIPS). The latest 10-year TIPS supply fetched positive yield for the first time in nearly two years. 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 has not 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. 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 June's rise.
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