* Stocks fall on unconfirmed rumors of hedge fund selling
* Fed minutes may contain clues on duration of Fed stimulus
* Fall in housing starts, rise in PPI in Jan have little
* Fed buys Treasuries as part of latest stimulus program
By Chris Reese
NEW YORK, Feb 20 U.S. Treasury debt prices made
slight gains on Wednesday as weakness in stocks, worries over
pending U.S. government spending cuts and global economic
uncertainty fueled a safe-haven bid.
While yields dipped, trade remained range-bound before the
release of minutes of the Federal Reserve's January policy
meeting later in the day.
The market will be looking at the minutes for clues on the
future of the central bank's bond-buying plans after the Federal
Open Market Committee last month left in place its $85
billion-a-month stimulus. The Fed said then it needed to support
employment even as it indicated a recent stall in U.S. economic
growth was likely temporary.
Treasuries began the day lower in price but turned around as
stock losses deepened, with traders citing rumors in the market
that a troubled hedge fund was selling assets.
"The bond market got a little bit oversold -- a little bit
anxious -- over the upcoming FOMC minutes, believing the Fed
will confirm these fears that asset purchases are going to slow
down sooner and that we could see an end to quantitative easing
by the end of the year," said Kim Rupert, managing director of
global fixed income analysis at Action Economics LLC in San
Francisco. "The market is now coming around to less fear that is
going to be the case," she said.
Benchmark 10-year Treasury notes were trading
4/32 higher in price to yield 2.02 percent, down from 2.03
percent late Tuesday, while 30-year bonds were 8/32
higher to yield 3.20 percent from 3.21 percent.
The 10-year yield has been bouncing in a 13-basis-point
range in the past three weeks and market participants see little
catalyst for now to break out of it, with activity relatively
subdued before the FOMC minutes due at 2 p.m. EST (1900 GMT).
The Fed will likely need to keep buying bonds until the end
of this year given the still-feeble state of the U.S. labor
market, Atlanta Fed President Dennis Lockhart told Reuters in an
interview on Tuesday.
Economists are split over whether the central bank will stop
buying bonds this year.
Under the program, the Fed on Wednesday bought $3.31 billion
of Treasuries maturing May 2020 through February 2023.
Treasuries prices were also generally supported by worries
over U.S. spending cuts set to begin March 1, and concern over
the outlook for Europe going into Italian elections later this
month, Rupert said.
Investors are mulling the potential economic impact of the
$85 billion of government spending cuts set to begin next month
if Republicans and Democrats do not move to avoid the automatic
cuts. Optimism was not running high that the government will be
able to stave off the so-called "sequestration."
"We maintain that if Washington is able to piece together
some type of compromise, it will not come until the eleventh
hour and frankly we're not at all confident that is even a real
possibility at this point," said Ian Lyngen, senior government
bond strategist at CRT Capital Group in Stamford, Connecticut.
The Treasuries market showed little impact from data showing
groundbreaking on new U.S. homes fell in January, although new
permits for construction rose to a 4-1/2 year high. The
government also said U.S. producer prices rose in January for
the first time in four months.
"Nothing here is a market mover, and the (producer price
index) numbers are basically static," said Steven Baffico, chief
executive officer at Four Wood Capital Partners in New York.