Article from reuters
Tue Mar 27, 2012 5:05pm EDT
* Dovish Bernanke views foster lower yields
* U.S. consumer confidence pulls back slightly in March
* Fed bought long-dated bonds
* U.S. Treasury sells 2-yr notes in well-bid auction
By Ellen Freilich
NEW YORK, March 27 (Reuters) - U.S. Treasuries prices rose on Tuesday, assisted by Federal Reserve Chairman Ben Bernanke's signal early this week that the U.S. central bank would keep monetary policy accommodative in order to quicken economic growth and cut unemployment.
Bernanke's view on sluggish U.S. growth being inadequate to reduce U.S. unemployment held out the promise of further easing by the Fed, a move markets had begun to back away from after reports showed signs of life in the labor market.
In an interview with ABC News set for broadcast later this evening, Bernanke spoke again in the same vein, saying it was important not to be complacent about the health of the U.S. economy. Asked about the potential for more large-scale Fed purchases aimed at keeping long-term interest rates low, Bernanke said the Fed was taking no options off the table.
"Bernanke has been fairly dovish of late and that put a little bit of fear into some people who had thought more quantitative easing was further away; so people are covering their shorts," said Scott J. Graham, head of government bond trading at BMO Capital Markets.
"First you had people taking positions off and that caused some imbalances, and now, we're going the other way," he said.
Demand for Treasuries was evident in the government's sale of $35 billion in two-year notes offering the highest yields in an auction of that maturity since July 2011.
The indirect bid was the largest since November at $19.1 billion, said Thomas Simons, money market economist at Jefferies & Co. in New York.
Benchmark 10-year notes were up 15/32 in late trade, their yields easing to 2.20 percent, below the 200-day moving average of 2.2170 percent.
The 30-year bond was up 27/32, its yield easing to 3.29 percent from 3.34 percent on Monday. The 30-year is below its 4-1/2-month high of 3.4920 percent set last Monday and its 200-day moving average of 3.3672 percent.
Matthew Duch, lead portfolio manager for the Calvert Government Fund at Calvert Investments, a fund group with more than $12.6 billion in assets under management, said flows were light.
"We're getting slow, steady growth," he said. "The Fed is doing everything they can do to accelerate the economy."
On Monday, Fed Chairman Bernanke cautioned that U.S. growth remains too low to reduce unemployment much further. The jobless rate stood at 8.3 percent in February.
The better U.S. jobs picture has lifted consumer sentiment in recent months, but a report on Tuesday hinted that improvement might be hitting a plateau due to rising gasoline prices. The Conference Board said its U.S. consumer confidence index slipped to 70.2 in March from an upwardly revised 71.6 in February.
Deutsche Bank Securities director and senior U.S. economist Carl Riccadonna said too much was being made of the rise in gasoline prices to $4 a gallon.
"The move up in gas prices has gotten a lot of attention in the media," he said. "That makes for great headlines, but in fact gas prices are rising in line with the usual seasonal pattern, which typically shows sharp increases in the first half of the year going into the summer driving season and then falls off in late summer, early fall."
After its two-year note auction on Tuesday, the Treasury will sell $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday.
The auctions come as corporate bond issuance is setting records as firms borrow money at low interest rates.
Investment-grade companies set a record for issuance in the first quarter, at $274.5 billion. That surpassed the previous high of $272.3 billion five years ago before the financial crisis began, according to IFR, a unit of Thomson Reuters.
Prior to the two-year note sale, the Fed bought $1.97 billion in long-dated Treasuries due Feb. 2036 to May 2041.
Article from reuters
