* Bond market recovery fizzles as Wall Street stocks turn up
* Speculation over reduced Fed's bond purchases cap bids
* Traders await clues on QE3's future from Bernanke
* U.S. Fed buys $1.45 billion in long-dated Treasuries
By Richard Leong
NEW YORK, May 20 U.S. government debt prices
slipped on Monday, with benchmark yields hovering near two-month
highs as Wall Street stocks' rise into fresh record territory
reduced earlier safe-haven bids for bonds.
Speculation about whether the U.S. Federal Reserve will
begin slowing its bond purchases later this year also put
selling pressure on the debt market, as analysts have become
more comfortable with the view that the economy is on a firmer
footing and job growth is on a sustainable path.
Traders and analysts anticipated Treasuries will likely move
in a tight range over the next few days, as investors await
clues on where the U.S. central bank stands on quantitative
easing from Fed Chairman Ben Bernanke, who will testify about
the economy before a congressional panel on Wednesday.
"The market is going to have a hard time moving away from
its current level ahead of the Bernanke testimony," said Stan
Shipley, a bond strategist with ISI Group in New York.
Treasuries prices rose earlier in a rebound from Friday's
losses, due to lower U.S. stock prices and a weaker dollar
against the yen.
By midday, benchmark 10-year Treasuries notes
were down 3/32 in price to yield 1.966 percent, up 1.2 basis
points from late Friday, after having traded up as much as 10/32
earlier with a yield of 1.919 percent. The 10-year yield was
about one basis point below the two-month peak set last week due
to stronger stock prices and a surging dollar.
On Wall Street, blue-chip stock prices rebounded from a
weaker open. The Standard & Poor's 500 was up 0.27
percent after touching a record intraday high at 1,672.08
A weaker dollar helped cap the decline in U.S. bond prices.
A weaker dollar makes it cheaper for foreign investors to buy
Treasuries and other assets.
The greenback retreated against the yen and other major
currencies after Japan's economy minister Akira Amari remarked
its currency might have weakened enough in the wake of a bold
$1.4 trillion monetary plan announced in April.
The yen fell to a 4-1/2 year low against the dollar last week.
While the Fed's aggressive purchases of Treasuries and
mortgage-backed securities, known as QE3 and currently at $85
billion a month, have helped the housing market recover and
consumers and companies pay down their debt, they have fallen
short of achieving the Fed's goals of substantially lowering
unemployment and sustaining real economic growth, analysts said.
Since late last year, there have been discussions among Fed
policymakers over the cost of sticking to this ultra-easy
monetary scheme, which critics say is inflationary.
Dallas Fed President Richard Fisher told CNBC television on
Monday that while the Fed's policies have boosted stocks and
helped the rich, it was unclear whether they are doing enough
for the broader U.S. economy. Fisher has been an opponent of the
Fed's asset purchase program.
"There is some impending fear that the Fed will taper its
bond purchases," said Robbert Van Batenburg, director of market
strategy at Newedge USA LLC in New York.
Many analysts on Wall Street, however, reckoned the Fed is
unlikely to back away from its commitment to bond purchases this
year with unemployment still high and recent data suggesting a
higher risk of deflation.
"Until we see sustainable growth in payrolls, the Fed is not
going to change its policy anytime soon," said Mike Cullinane,
head of Treasuries trading in D.A. Davidson in St. Petersburg,
Bets on another spring economic slowdown fell after a
better-than-expected April jobs report over two weeks ago, but
they made a partial comeback after a spate of disappointing
reports on housing and manufacturing activities last week.
The U.S. central bank will buy $1.45 billion in Treasuries
that come due in February 2036 to February 2043 for its QE3
program on Monday.