* Some gains trimmed as stocks erase some losses, edge
* Dec CPI keeps door open for monetary accommodation
By Ellen Freilich
NEW YORK, Jan 16 U.S. Treasury debt prices edged
up on Wednesday on Federal Reserve purchases, subdued inflation
and concerns about a looming fight in Washington over the
federal debt ceiling.
Early stock market losses were also supportive initially,
but as major stock indexes reduced losses, Treasuries shaved
"A lot of crosscurrents are supporting Treasuries right now,
including the almost daily buybacks that the Fed is doing," said
Wilmer Stith, portfolio manager of the Wilmington Broad Market
Fund in Baltimore.
The Fed bought $1.474 billion in Treasury coupons maturing
from February 2036 through November 2042 as part of its ongoing
effort to foster enough economic activity to allow the
unemployment rate to fall. Fed Chairman Ben Bernanke indicated
late Monday that the Fed would continue those asset purchases.
Consumer price data reported on Wednesday offered evidence
that inflation was subdued enough for the Fed to adhere to its
path of monetary ease.
While there are positive parts to the U.S. economic story
that could allow yields to rise later in the year, issues like
the debt ceiling and payroll tax cut that was not carried
forward are underpinning Treasuries.
Developments in Japan are also supportive, Stith said.
Former deputy Bank of Japan governor Kazumasa Iwata, viewed
by markets as a strong candidate for the next BOJ governor, said
quantitative easing is effective in beating deflation if
implemented through appropriate means and at a sufficient size,
Iwata's advocacy of bolder monetary easing has made him a
favorite among politicians as a possible successor to incumbent
Governor Masaaki Shirakawa when his term expires in April.
"Japan is considering some of the same measures as the Fed
and that can affect our market," Stith said. "If they buy
dollars, they will put them in risk free assets which will help
the shorter end of the Treasury curve.
"Given the propensity for Treasury bill yields to go
negative, they could be forced to go farther out on the maturity
curve than they have historically and this could help
shorter-dated coupons like two- and five-year notes," Stith
Data showed consumer prices were flat in December and prices
excluding food and energy items rose just 0.1 percent.
"This supports the Fed's contention that inflation is mild
and that inflation expectations should be stable," said Terry
Sheehan, an economic analyst at Stone & McCarthy Research
Associates in Princeton, New Jersey.
Benchmark 10-year notes rose 5/32 in price at
98-6/32, their yields easing to 1.83 percent from 1.84 percent
late on Tuesday.
Thirty-year bonds climbed 5/32 to 94-23/32, their yields
easing to 3.02 percent from 3.03 percent on Tuesday.