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TREASURIES-U.S. bonds rally after supply, Fed policy mulled
June 13, 2013 / 9:56 PM / 4 years ago

TREASURIES-U.S. bonds rally after supply, Fed policy mulled

* Market gets late boost from article on Fed's likely course
    * Upbeat U.S. sales, jobless data briefly curb bond gains
    * Fed buys $3.29 bln in Treasuries due in 2020 to 2023
    * TIPS swoon; 10-year breakeven rate slips near 2 percent


    By Ellen Freilich
    NEW YORK, June 13 (Reuters) - U.S. Treasury debt prices rose
on Thursday after the Treasury concluded the last of its three
coupon auctions of the week and investors began to back away
from the idea that the Federal Reserve was likely to cut back
soon on monetary accommodation.
    Early gains were limited after data showed a drop in new
jobless claims in the latest week, evidence of strength in the
economy that would argue for less Fed accommodation rather than
more.
    U.S. debt yields had already risen to four-month highs on
the notion that the Fed might start to pare its bond purchases
and pursue a less stimulative monetary policy.
    But the last of the week's three Treasury coupon auctions --
this one of 30-year bonds after the sale of three- and 10-year
notes earlier in the week, gave the market a breather from new
supply, and Treasuries, already up on the day, held their
ground.
    Treasury prices rose even as stocks rallied.
    Bonds got a late afternoon lift after The Wall Street
Journal published a story saying an adjustment in the Fed's
bond-buying program did not mean that the U.S. central bank
would end "all at once" or that the Fed was "anywhere near
raising short-term interest rates."
    The Bank of Japan's decision earlier this week to not embark
on further stimulus added to trader anxiety about the
willingness of central banks to aid their economies.
    "The market read the ... Wall Street Journal article as
telegraphing that the Fed won't raise the federal funds rate
anytime soon, that there's still a lot of slack in the economy
that they are concerned about," said Wilmer Smith, co-manager of
the Wilmington Broad Market Fund. "And that if the Fed does
taper its current $85 billion a month in purchases, it wouldn't
suddenly halt purchases, but it might reduce the amount, maybe
buy $65 billion in securities a month.
    "The article seemed to suggest that the market had gotten a
little ahead of itself in thinking the Fed would curtail its
monthly purchases entirely," he said.
    Benchmark 10-year Treasury notes rose 22/32 in
price, yielding 2.15 percent, down from 2.23 percent late on
Wednesday. The 10-year yield touched a 14-month high of 2.293
percent two days ago.
    The 30-year bond rose a point, its yield easing
to 3.32 percent from 3.375 percent.
    Treasuries prices briefly retreated from their initial highs
after a steeper-than-expected drop in weekly jobless claims and
a surprisingly strong rise in May retail sales. 
 
    Within the U.S. government debt sector, Treasury inflation
protected securities were on track for another beating as bets
on weak inflation and reduced Fed purchases have hammered the
sector, sending the 10-year TIPS yield into positive territory
for the first time since January 2012 earlier this week.
    TIPS have lost 5.79 percent year-to-date, according to the
TIPS total return index compiled by Barclays. 
    The yield gap on 10-year TIPS and 10-year regular
Treasuries, which the Fed monitors as a gauge of investors'
inflation expectations, narrowed further on Thursday to 2.03
percent. The 10-year inflation "breakeven" rate has not been
below 2 percent since late December 2011.
    
    The Fed bought $3.294 billion in government debt whose
maturities range from August 2020 through February 2023.

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