* Market rebounds on bets before likely Japan's debt buy
* Doubts whether Japan's move will hold down yen for long
* U.S. Fed buys $3.9 bln in intermediate government issues
* Fed, BoJ at risk of undermining each other's efforts
(Updates market action, adds fresh quotes)
By Richard Leong
NEW YORK, Sept 15 U.S. Treasury debt prices
rose on Wednesday as Japan's move to stem a rising yen spurred
bets that the world's No. 3 economy will reinvest their dollar
purchases back into U.S. government debt.
The market recovered from earlier losses tied to hopes that
Japan's first currency intervention in six years would keep the
global recovery intact.
As Japan's currency campaign sparked the dollar's biggest
one-day rally against the yen in nearly two years, trader
sentiment grew that the Bank of Japan will plow their dollars
into Treasuries in the coming days, even though it said earlier
it is ready to leave its intervention unsterilized, a phrasing
to signal that it is not buying Treasuries. [ID:nTKX006996]
"Today's move is in anticipation of that (BoJ buying),"
said Anthony Valeri, market strategist with LPL Financial in
San Diego. "The intervention is positive for the Treasuries
market, especially short-dated issues which Japan will likely
Dealers suggested Wednesday's intervention amounted to
about 300-500 billion yen ($3.6 billion-$6 billion), though
some Japanese media cited market sources saying the amount was
closer to 1 trillion yen. In the 2003-2004 intervention
campaign, it spent 35 trillion ($409 billion). [ID:nTOE68E02W]
Also fueling the rise in Treasuries was expectations that
the Federal Reserve will enlarge its government debt purchases
using proceeds from maturing mortgage securities it owns.
On Wednesday, the Fed bought $3.9 billion in U.S.
government debt maturing in four to five years. It has spent
$21.5 billion of those funds to buy Treasuries since August.
For more, see [ID:nN20EDTABL]
In the cash market, five-year Treasuries US5YT=RR rose
4/32 in price to yield 1.42 percent, down from 1.44 percent
late Tuesday, while two-year notes US2YT=RR were up 2/32 to
yield 0.48 percent, down from 0.50 percent late on Tuesday.
Longer-dated debt lagged their short-dated counterparts.
Benchmark 10-year notes US10YT=RR traded 6/32 lower for a
yield of 2.71 percent, up from 2.68 percent late on Tuesday.
The 30-year bond US30YT=RR was down 1-6/32 for a yield of
3.87 percent, up from 3.80 percent late on Tuesday.
COMPLICATIONS FOR FED
Many traders were skeptical whether Japan's currency move
will have a lasting impact on weakening the yen, as there has
been increased market talk that the Fed will grow its balance
sheet to buy Treasuries in a bid to help the U.S. economy.
Thursday's U.S. data signaled slowing growth in the
manufacturing sector, which has been the lone bright spot
during this uneven recovery. [ID:nN15145257]
For a graphic on N.Y. Fed manufacturing data, see:
For a graphic on U.S. industrial output, see:
Some analysts have predicted if U.S. growth were to slow
further, the U.S. central bank will reinstate quantitative
easing measures it had first adopted it late 2008 to combat the
global credit credit.
These forecasters expect the Fed could implement what they
call "QE II" and buy up to $1 trillion in Treasuries by early
2011. Such a move could push U.S. yields lower and weaken the
dollar, and in turn strengthen the yen, analysts said.
"This could possibly counteract the (BoJ) intervention,"
LPL's Valeri said.
The U.S. central bank is scheduled to hold a policy meeting
Analysts cautioned the Fed and the BoJ could run the risk
to undermine each other efforts.
"The more Fed has to do more QE. Japan has to do more
interventions," said George Goncalves, head of U.S. rates
strategy at Nomura Securities International in New York.
Stories on yen strength, intervention: [ID:nECONJP]
PDF on yen's rise: r.reuters.com/zuz33p
Reuters Insider TV-Dlr bounce: link.reuters.com/fet63p
Graphic on yen strength: r.reuters.com/puw56n
Japan political risk: r.reuters.com/jyj83n
(Additional reporting by Emily Flitter; Editing by Diane
Craft) ((firstname.lastname@example.org ; +1 646 223 6313;