US Treasuries Rise as Investors Weigh Stimulus

Treasuries advanced for a third day as investors weighed whether the world’s largest economy is expanding fast enough to prompt the Federal Reserve to taper monetary stimulus.

Benchmark 10-year notes headed for a weekly gain before Fed Governor Jeremy Stein speaks today on monetary policy after New York Fed Bank President William C. Dudley said yesterday policy makers may prolong asset purchases. Chairman Ben S. Bernanke said June 19 the U.S. central bank may reduce bond purchases this year and end them entirely in 2014 if economic growth is in line with central-bank projections.

“The market’s had a very nice recovery as the world realizes that every asset class cannot go down at the same time,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “The market was overdone to the cheap side regardless of how much Ben Bernanke eases up on the gas pedal. Buyers emerged and this is fueling the bounce.”

Treasury 10-year yields fell two basis points, or 0.02 percentage point, to 2.45 percent at 7:02 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2023 rose 6/32, or $1.88 per $1,000 face value, to 93 7/8. The yield has declined eight basis points this week.

Dudley said yesterday any decision to reduce the pace of the central bank’s asset purchases wouldn’t represent a withdrawal of stimulus, and that an increase in the Fed’s benchmark interest rate is “very likely to be a long way off.” He said bond purchases could be prolonged if economic performance fails to meet the Fed’s forecasts.

Bloomberg

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