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4 years ago
TREASURIES-U.S. bonds rally as concerns ease over rising rates
July 11, 2013 / 2:41 PM / 4 years ago

TREASURIES-U.S. bonds rally as concerns ease over rising rates

* Thirty-year supply set to sell at highest yield since 2011
    * U.S. jobless claims unexpectedly rise in latest week
    * Fed to buy $1.0 billion to $1.5 billion in TIPS

    By Richard Leong
    NEW YORK, July 11 (Reuters) - The U.S. government debt
market rallied on Thursday as investors perceived remarks by
Federal Reserve Chairman Ben Bernanke as suggesting the U.S.
central bank would hold interest rates near zero for an extended
period even after it stops buying bonds.
    Revived bids for Treasuries should spur demand at a $13
billion auction of 30-year bonds, the final part of this week's
$66 billion in coupon-bearing supply, analysts said.
    "If the Fed is not going to change (rate) policy any time
soon, you are going to see guys happy to buy at this level,"
said Todd Colvin, senior vice president of global institutional
sales at R.J. O'Brien and Associates in Chicago.
    Another factor behind the bids for Treasuries was an
unexpected rise in U.S. jobless claims in the latest week,
casting some doubts about the recent acceleration in job growth
- which is seen critical in the Fed's decision whether to scale
back its bond purchases, currently at $85 billion a month.  
    Bernanke, at a conference Wednesday sponsored by the
National Bureau of Economic Research, said a "highly
accommodative policy is needed for the foreseeable future."
    Also on Wednesday, the Fed released the minutes of its June
18-19 policy meeting, which showed about half of the
policymakers felt the central bank's bond-buying program should
be over by year-end, but many wanted reassurance the U.S. jobs
recovery was on solid ground before any policy retreat.
    After that meeting of policymakers, Bernanke laid out a
roadmap on a possible reduction of the Fed's third round of
quantitative easing, dubbed QE3, which many on Wall Street
anticipate might occur in September.
    As part of its ongoing bond-buying program, the Fed on
Thursday planned to purchase $1.0 billion to $1.5 billion in
Treasury Inflation-Protected Securities at 11:00 a.m. EDT (1500
    Since the Fed first signaled its intention for a possible
pullback in stimulus, financial markets have been roiled, with
bond yields here and abroad surging. On Monday, benchmark
Treasury yields touched their highest levels in nearly two
    In recent days, Bernanke and other top Fed officials have
sought to soothe the concerns of market participants by trying
to differentiate between reducing stimulus or buying fewer
Treasuries and mortgage-backed securities, and tightening policy
or raising short-term interest rates.
    It is unclear whether they have achieved the goal of calming
investors, but bond yields retreated from their recent peaks.
    "We tend to be rangebound in rates at this point in the next
month or two," said David Lafferty, chief investment strategist
at Natixis Global Asset Management in Boston, which oversees
about $785 billion.
    On above-average volume, benchmark 10-year Treasury notes
 last traded 24/32 higher in price with a yield of
2.583 percent, down 8.9 basis points from late on Wednesday.
    The 10-year yield touched a session low of 2.553 percent,
which was 20 basis points below the 23-month high set on Monday
in the wake of a surprisingly strong June payrolls report.
    Despite the market rebound, the 30-year bond auction was
still on track to fetch its highest yield since August 2011.
    In the "when-issued" sector, traders expected the reopening
of the 30-year bond issue due in May 2043 to
sell at a yield of 3.641 percent.
    Mortgage-backed securities also posted gains after
Bernanke's remarks. Prices on 3.5-percent coupon MBS supported
by 30-year loans guaranteed by Fannie Mae were up
13/32, yielding 3.368 percent, down 10.6 basis points from late
on Wednesday.

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