By Richard Leong
NEW YORK, July 12 (Reuters) - U.S. Treasuries prices fell on
Friday, as profit-taking halted a rebound in the bond market
after remarks by Federal Reserve Chairman Ben Bernanke calmed
fears that the central bank might raise interest rates sooner
than some had thought.
Traders who were still stuck with soured bets in the recent
bond market rout also rid of those positions before the weekend,
'There are still a lot of Treasuries traders who are looking
to sell,' said Lou Brien, market strategist at DRW Trading in
Adding to the bond selling was an interview Philadelphia
Federal Reserve President Charles Plosser gave to Bloomberg
television, where he said he would like to see the U.S. central
bank to halt its $85 billion monthly bond purchase program,
known as QE3, this year.
'I don't want to do it all at once, but I think we should
begin to taper very soon and hopefully end it by the end of this
year,' Plosser said in the interview.
Plosser was scheduled to speak on a panel with St. Louis Fed
chief James Bullard at an event in Jackson Hole, Wyoming.
Prior to their downturn, Treasuries prices rose partly on
political and financial troubles in Portugal. A warning about
weakening Chinese growth also revived safe-haven bids for less
risky U.S. government debt, sending benchmark yields to their
lowest level in a week and some 20 basis points below a near
two-year peak set on Monday.
Moreover, solid demand for this week's $66 billion in
coupon-bearing supply helped instill confidence in the bond
market in advance of Bernanke's congressional testimony on the
economy next week.
'It's a follow-through from yesterday's gains. There's also
relief with supply out of the way,' said John Canavan, market
strategist at Stone & McCarthy Research Associates in Princeton,
Benchmark 10-year Treasury notes last traded
7/32 lower in price with a yield of 2.599 percent, up 2.7 basis
points from late on Thursday. Earlier, they were up as much as
15/32 with a yield of 2.518 percent.
The 30-year bond last traded 4/32 lower to yield
3.634 percent, up 0.8 basis point from Thursday's close.
For the week, the 10-year yield was on track to fall nearly
14 basis points, which would be its steepest weekly decline
since June 2012, according to Reuters data.
Friday's initial price gains in Treasuries were largely
driven by remarks from the Fed chief. Bernanke, at a conference
Wednesday sponsored by the National Bureau of Economic Research
said a 'highly accommodative policy is needed for the
The bond market bounce was also fueled by safe-haven bids
due to overseas developments, analysts said.
'Bernanke helped to turn sentiment to be less negative. What
happened overseas also helped,' said Sharon Stark, chief fixed
income strategist at D.A. Davidson in St. Petersburg, Florida.
Portugal's creditors had been scheduled to begin a review of
its bailout on Monday, but the country asked for a delay until
August after President Anibal Cavaco Silva rejected a plan to
heal a government rift, throwing the euro zone into political
Traders dumped Portuguese government debt with five-year
yield jumping to 7.75 percent, its highest level in
eight months. They shifted money into Treasuries, German Bunds
and other less risky government debt, analysts said.
As Portugal's situation was a reminder of the risk from the
euro zone debt crisis, a top Chinese official signaled that
Beijing might allow economic growth significantly below 7
percent in the second half of the year.
Declining Chinese demand has exerted downward pressure on
oil and other commodity prices globally.
Inflation in the United States has softened this year,
complicating the Fed's decision whether to reduce its $85
billion monthly bond purchase program later this year. Some Fed
policymakers raised concerns that reducing stimulus too soon
might exacerbate the risk of deflation, a downward price spiral
that crippled Japan's economy for a decade.
The core rate on personal consumption expenditure, the Fed's
preferred inflation gauge, was 1.1 percent in May,
far below its 2 percent goal.
U.S. inflation data released on Friday, however, suggested
the worrisome price trend might be turning around with the
expected pick-up in business activity and consumer spending in
the second half.
On Friday, the government said producer prices grew 0.8
percent in June, faster than the 0.5 percent forecast by
economists polled by Reuters.
Separately, Thomson Reuters/University of Michigan's
preliminary July index of consumer sentiment retreated from a
near six-year high due to a decline in confidence about the
prospects of the economic recovery.
(Reporting by Richard Leong; Editing by Nick Zieminski)
(--------------------- MARKET SNAPSHOT AT 1246 EDT (1646 GMT) --------------------- Sept T-Bond 134-1/32 (- 6/32) Sept 10-Year note 126-4/32 (- 7/32) Change vs Current Nyk yield Three-month bills 0.035 (unch) 0.036 Six-month bills 0.0725 (+0.00) 0.074 Two-year note 100-02/32 (- 1/32) 0.347 Five-year note 99-24/32 (- 6/32) 1.427 10-year note 92-22/32 (- 7/32) 2.597 30-year bond 86-10/32 (- 3/32) 3.631 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 17.50 (+1.00) U.S. 3-year dollar swap spread 16.00 (+1.25) U.S. 5-year dollar swap spread 18.25 (+0.75) U.S. 10-year dollar swap spread 22.00 (+0.50) U.S. 30-year dollar swap spread -2.00 (+0.50))
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