* Benchmark yields fall, end week near two-week lows
* Fed buys $3.14 bln notes due 2020-23
* Treasury to sell $99 billion new supply next week
* Data suggests revived appetite for U.S. bonds
By Karen Brettell and Richard Leong
NEW YORK, July 19 U.S. Treasuries prices rose on
Friday as disappointing earnings from technology giants Google
and Microsoft weighed on stocks and rekindled safe-haven bids
for bonds, pushing benchmark yields to two-week lows.
Google and Microsoft both announced
disappointing quarterly results, building some concerns over how
far the ongoing equity rally will extend.
The Federal Reserve's resumption of its bond purchase
program, known as Quantitative Easing 3, or QE3, on Friday after
a two-day hiatus, also helped lift bond prices to rise for a
second week in a row - something that has not happened since
Investor sentiment on U.S. bonds has stabilized, analysts
say, after its rapid deterioration on fears the U.S. central
bank will raise short-term interest rates not long after it
halts QE3, perhaps next year. Those worries, together with data
on stronger-than-expected jobs growth this spring, propelled
benchmark yields to 2.755 percent last week, the highest level
in 23 months, according to Reuters data.
Fed Chairman Ben Bernanke stressed in testimony to Congress
on Wednesday and Thursday that the central bank will likely
stick to a near-zero rate policy for a long time even after it
stops its Treasuries and mortgage-backed securities purchases,
which currently total $85 billion a month.
"Things are stabilizing and we have some clarity now," said
Kathy Jones, fixed-income strategist at Charles Schwab in New
York, which has over $2 trillion in client assets.
Wall Street expects the Fed will likely scale back QE3 at
its September policy meeting, which follows its July 30-31
meeting, if the economy shows further improvement.
With Bernanke's testimony behind them, investors shifted
their focus to company earnings and economic data to gauge
whether the U.S. economy is strong enough for the Fed to reduce
its bond-purchase stimulus.
"The bottom line is that Fed policy is and has always been
data dependent," said James Sarni, managing principal at Payden
& Rygel in Los Angeles which oversees $80 billion in assets.
On light trading volume, benchmark 10-year Treasury notes
rose 12/32 in price to yield 2.488 percent, which
was down 4.4 basis points from late on Thursday and on track to
fall 10 basis points on the week. The 10-year yield traded as
low as 2.461 percent two days earlier.
The 30-year bond gained more than 1 point, with
a yield of 3.572 percent, down 6.4 basis points from Thursday's
close and on track to decrease 6 basis points from a week ago.
On Wall Street, the tech-heavy Nasdaq composite was
0.7 percent lower in late trading, while the Standard & Poor's
was up 0.1 percent, paring earlier losses. The Dow Jones
industrial average was off 0.1 percent in late trading.
Bond activity dwindled earlier than usual as some traders
took off for the weekend due to the lack of economic data and
this week's heat wave that hit much of the Eastern United
Safe-haven U.S. government bonds were also supported after
the city of Detroit filed for bankruptcy on Thursday, the
largest-ever municipal bankruptcy in U.S. history. The news
spurred selling in the $3.7 trillion municipal bond market on
Treasuries prices also rose on the Fed returning to the
market for the first time since Tuesday, buying $3.14 billion in
notes due from 2020 to 2023.
"There has been constructive news for bonds over the last 20
hours or so; we had a pretty successful TIPS auction, some
weakness out of Google and Microsoft, and the bankruptcy
announcement out of Detroit," said Kevin Walter, head of
Treasuries trading at BNP Paribas in New York.
The U.S. Treasury Department sold $15 billion in 10-year
Treasuries Inflation-Protected Securities (TIPS) on Thursday to
Next week it will auction $99 billion in new coupon-bearing
supply that include $35 billion in two-year notes on Tuesday,
$35 billion in five-year notes on Wednesday and $29 billion in
seven-year debt on Thursday.
Analysts cited encouraging signs of revived demand for U.S.
bonds. Japanese investors bought foreign bonds for a second
straight week, according to capital flows data released by
Japan's Ministry of Finance on Friday.
Outflows from U.S. bond mutual funds and exchange-traded
funds have reached $9.4 billion in July, compared with a record
total of $67.9 billion in June during the bond market rout,
TrimTabs Investment Research said on Friday.