* Bond prices rise as U.S. spending cuts in focus
* Month-end extension buying adds bid to Treasuries
* Feb will buy $45 bln in debt in March for QE
By Karen Brettell
NEW YORK, Feb 28 U.S. Treasuries ended slightly
higher in price on Thursday in choppy trading, lifted by
safe-haven buying on the eve of federal spending cuts that could
curb U.S. economic growth.
Month-end buying as money managers adjusted their average
portfolio duration to meet benchmarks added a bid to the market.
Automatic across-the-board spending cuts, known as
sequestration, will be introduced on Friday. Many economists
expect those budget cuts may reduce U.S. economic growth by
around half a percentage point.
"The risks are to the downside in part from the potential
additional fiscal drag from the sequestration," said Michael
Pond, head of global inflation-linked research at Barclays
Capital, in New York.
The International Monetary Fund said on Thursday it would
likely cut its 2013 growth forecasts for the United States by at
least a 0.5 percentage point if the cuts are fully implemented.
The IMF now projects that the U.S. economy will grow 2 percent
"Even if they come up with an alternative, the alternative
would not be no cuts, but maybe different cuts. That still means
growth will not be as strong as it would have been without the
cuts," Pond added.
Bonds were little moved by data earlier on Thursday that
showed that U.S. gross domestic product grew 0.1 percent in the
fourth quarter of 2012, less than the 0.5 percent growth that
the market had expected.
Other data also showed that new claims for unemployment
insurance totaled 344,000, fewer than the 360,000 claims
economists had forecast.
U.S. Treasuries have largely held in a small range after a
dramatic rally on Monday when an Italian election left the
country with no clear majority government and renewed concerns
about the region's ability to manage its debt problems.
The benchmark 10-year U.S. Treasury note's yield
traded at around 1.90 percent on Thursday, after rising as high
as 2.06 percent on Feb. 14. The debt had traded in a higher
yield range of around 1.90 percent to 2.06 percent since late
January, before falling as low as 1.84 percent on Monday.
Late Thursday afternoon, the 10-year note was up 3/32 in
"The Italian elections early this week reminded us that we
were still in a volatile environment, and that triggered some
profit-taking. Trades that had done well for several weeks saw
some unwinding," said Mike Materasso, senior vice president and
co-chair of Franklin Templeton's fixed-income policy committee.
The government bonds have also been supported by comments
from Federal Reserve Chairman Ben Bernanke this week that
strongly defended the U.S. central bank's bond purchase program.
The Fed said on Thursday that it will buy $45 billion in
Treasuries in March as part of its ongoing purchases, including
a purchase on Friday of between $750 million and $1 billion in
debt with maturities ranging from Aug. 15, 2023, to Feb. 15,
On Thursday, the Fed purchased $1.45 billion of bonds with
maturities ranging from Feb. 15, 2036, to Aug. 15, 2042.