TREASURIES-U.S. bonds rise on Bernanke reassurance hopes

NEW YORK, Jan 14 (Reuters) - U.S. Treasury prices rose on Monday, supported by Federal Reserve purchases of longer-dated bonds, upcoming U.S. debt ceiling negotiations, and the view that comments from Fed Chairman Ben Bernanke later today would reassure markets that the Fed will continue buying bonds for some time to come. In December, the Fed announced $45 billion in monthly, open-ended purchases of government securities with maturities ranging from four to 30 years in order to maintain downward pressure on longer-term interest rates, support mortgage markets, and help make broader financial conditions more accommodative. But benchmark U.S. yields climbed to 8-month highs in the first week of 2013 after minutes of the Fed's December meeting showed several policymakers wanted to scale back quantitative easing (QE) well before year-end. On Monday, the Fed bought $1.47 billion in Treasuries with maturities ranging from February 2036 to November 2042. "Besides the Fed's purchases, the Treasury market has been supported by news reports discussing the contentious debt ceiling negotiations ahead ... and (the prospect of) Fed Chairman Bernanke's comments later today, which many believe will signal more willingness to continue QE than the recent FOMC minutes," said Zach Pandl, strategist at Columbia Management in Minneapolis. Benchmark U.S. 10-year Treasury notes rose 6/32 in price, their yields easing to 1.85 percent from 1.87 percent on Friday. In contrast to the impression left by the minutes of the last Fed meeting, "Bernanke's speech at 4 p.m. is viewed as a bullish development for the market as he will indicate nothing has changed regarding the Fed's stance on quantitative easing," said Tom DiGaloma, managing director at Navigate Advisors LLC in Stamford, Connecticut. Some said a two-week absence of new coupon supply should also be supportive for Treasury prices. Yields are down from a high of 1.98 percent in early January, but are up from about 1.70 percent at the end of 2012 as investors price in slightly upbeat economic data and the prospect of another round of tough political negotiations in coming weeks to raise the U.S. debt ceiling and let the government pay for expenditures Congress has already enacted. The Fed's next monetary policy meeting is January 29-30. "(Interest-rate) policy seems to be on autopilot until the unemployment rate gets to 6.5 percent," said Chris Rupkey, managing director and chief financial economist at Bank of Tokyo/Mitsubishi in New York. "Once 6.5 percent is reached there will be a discussion and our guess is rates might stay at zero as long as PCE (personal consumption expenditures)inflation is not above 2.5 percent." Chicago Fed President Charles Evans on Monday said the U.S. economy is expected to grow by 2.5 percent in 2013, improving to 3.5 percent growth in 2014. Speaking at the Asian Financial Forum in Hong Kong, Evans forecast the U.S. unemployment rate would be 7.4 percent this year, and about 7 percent in 2014.

While looming talks on the debt ceiling were likely to keep yields from climbing back near 2 percent in coming weeks, some analysts still see them spiking to that level by mid-year once some sort of debt ceiling deal is reached, given the guarded optimism about the economic recovery.