| NEW YORK
NEW YORK The government debt prices turned mixed on Monday after Federal Reserve Chairman Ben Bernanke said the economy needed to grow more quickly to cut the unemployment rate further, keeping hope alive for further bond purchases in the future.
While he did not indicate that the Fed was eager to begin another round of bond purchases, Bernanke said a continuation of accommodative monetary policies was needed to support more rapid economic expansion that would reduce unemployment.
The U.S. economy grew at a 3 percent rate in the fourth quarter, but is estimated to have grown only between 1 and 2 percent in the first quarter of 2012.
Although Treasuries prices slipped in the early part of the trading session, "Bernanke's speech reminded everyone just how dovish he is and how he's not comfortable enough just yet to indicate any relaxation in the Fed's support for the economy," said Michael Lorizio, trader at Manulife Asset Management in Boston.
Those views reduced early losses, incurred in part on a more upbeat view of Europe's outlook, which in turn could weaken demand for safe-haven U.S. government debt.
Still, short-dated securities were narrowly higher in late trade, even though the U.S. Treasury will sell a total of $99 billion in coupon debt this week: $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday.
At the same time, two scheduled purchases of Treasuries in the 30-year space this week acted as a curb on selling of 30-years, Lorizio said. A Fed purchase of Treasuries in the 10-year space scheduled for Wednesday limited the downside in that maturity as well.
"The constant presence of Fed purchases gives (long-dated Treasuries) a fair amount of support," Lorizio said.
Anticipation of month- and quarter-end buying also invited buyers when prices sank and yields rose.
"There's a perception you might see not just the traditional month-end buying, but also some buying coming as people rebalance their portfolios," Lorizio said. "Since we had a little bit of a pullback in rates and a decent performance in equities, there may be some switching out of equities into bonds, not because people are making a bullish statement about rates, but just to get the balance back in line."
Wall Street stocks gained well over 1 percent on Monday.
Early in the session, longer-dated Treasury yields retested their 200-day moving averages after German business sentiment unexpectedly improved for a fifth straight month.
Indications that Germany is prepared to allow two rescue funds to operate concurrently in an effort to bolster the firepower to combat the region's debt crisis helped revive investor appetite for stocks and other growth-oriented assets, analysts said.
"The outlook on Europe seems to be a bit better," said Andrew Shulman, a Treasuries trader at Wunderlich Securities in New York.
Market action was choppy on below-average volume.
In late trade, benchmark 10-year U.S. Treasury notes were down 1/32, their yields at 2.25 percent, versus 2.24 percent late on Friday.
The 10-year yield was above its 200-day moving average of 2.2209 percent but below its 4-1/2-month peak of 2.399 percent set last Tuesday, according to Tradeweb.
The 30-year bond was down 13/32, its yield rising to 3.33 percent from 3.31 percent on Friday, below its 4-1/2-month high of 3.492 percent set last Monday and its 200-day moving average of 3.3717 percent.
Meanwhile, the Fed sold $8.621 billion in government debt due Feb 2013 to July 2013 as part of its $400 billion "Operation Twist" program intended to help hold down mortgage rates and other borrowing costs to foster economic growth.
The Fed's unloading of these short-dated securities did not hurt their relatively better performance versus their longer-dated counterparts, analysts said. That also portended solid bidding for $35 billion worth of new two-year notes for sale on Tuesday, they added.
On a "when-issued" basis, the new two-year notes due March 2014 yielded 0.361 percent.
The current two-year note due February 2014 rose 1/32, its yield easing to 0.35 percent from 0.37 percent Friday.
Whether auctions of five- and seven-year notes this week would fetch strong demand was unclear, analysts said. Treasury Department data released last week showed bond funds and foreign investors scaled back their purchases of new 10-year and 30-year Treasuries at separate auctions held earlier this month.
"There continues to be a lack of buying support from Asia. We are still seeing rebalancing overall in Europe," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
This week's Treasuries supply will also compete with higher-yielding corporate bond issuance, which is within striking distance of setting a first-quarter volume record, according to IFR, a unit of Thomson Reuters. <USC/>
Demand for corporate bonds, stocks and other riskier assets improved on Monday, as major Wall Street indexes jumped 1 percent. .N
"The economy recovery continues to show some strength, and there continues to be a bid for risk assets," said Gibson Smith, co-chief investment officer at Janus Capital Group in Denver.
(Additional reporting by Richard Leong; Editing by Dan Grebler)