By Ellen Freilich
NEW YORK, Jan 14 U.S. Treasury prices rose on
Monday, supported by Federal Reserve purchases of longer-dated
bonds, upcoming U.S. debt ceiling negotiations, and the view
that comments from Fed Chairman Ben Bernanke later today would
reassure markets that the Fed will continue buying bonds for
some time to come.
In December, the Fed announced $45 billion in monthly,
open-ended purchases of government securities with maturities
ranging from four to 30 years in order to maintain downward
pressure on longer-term interest rates, support mortgage
markets, and help make broader financial conditions more
But benchmark U.S. yields climbed to 8-month highs in the
first week of 2013 after minutes of the Fed's December meeting
showed several policymakers wanted to scale back quantitative
easing (QE) well before year-end.
On Monday, the Fed bought $1.47 billion in Treasuries with
maturities ranging from February 2036 to November 2042.
"Besides the Fed's purchases, the Treasury market has been
supported by news reports discussing the contentious debt
ceiling negotiations ahead ... and (the prospect of) Fed
Chairman Bernanke's comments later today, which many believe
will signal more willingness to continue QE than the recent FOMC
minutes," said Zach Pandl, strategist at Columbia Management in
Benchmark U.S. 10-year Treasury notes rose 6/32 in price,
their yields easing to 1.85 percent from 1.87 percent on Friday.
In contrast to the impression left by the minutes of the
last Fed meeting, "Bernanke's speech at 4 p.m. is viewed as a
bullish development for the market as he will indicate nothing
has changed regarding the Fed's stance on quantitative easing,"
said Tom DiGaloma, managing director at Navigate Advisors LLC in
Some said a two-week absence of new coupon supply should
also be supportive for Treasury prices.
Yields are down from a high of 1.98 percent in early
January, but are up from about 1.70 percent at the end of 2012
as investors price in slightly upbeat economic data and the
prospect of another round of tough political negotiations in
coming weeks to raise the U.S. debt ceiling and let the
government pay for expenditures Congress has already enacted.
The Fed's next monetary policy meeting is January 29-30.
"(Interest-rate) policy seems to be on autopilot until the
unemployment rate gets to 6.5 percent," said Chris Rupkey,
managing director and chief financial economist at Bank of
Tokyo/Mitsubishi in New York. "Once 6.5 percent is reached there
will be a discussion and our guess is rates might stay at zero
as long as PCE (personal consumption expenditures)inflation is
not above 2.5 percent."
Chicago Fed President Charles Evans on Monday said the U.S.
economy is expected to grow by 2.5 percent in 2013, improving to
3.5 percent growth in 2014. Speaking at the Asian Financial
Forum in Hong Kong, Evans forecast the U.S. unemployment rate
would be 7.4 percent this year, and about 7 percent in 2014.
While looming talks on the debt ceiling were likely to keep
yields from climbing back near 2 percent in coming weeks, some
analysts still see them spiking to that level by mid-year once
some sort of debt ceiling deal is reached, given the guarded
optimism about the economic recovery.