TREASURIES-Bond prices rise on Fed purchase, Bernanke
* Fed's purchases support bids for long-dated bonds
* Benchmark yields fall to lowest in about 1-1/2 weeks
* Top Fed officials back Treasuries buy for now
* Bernanke sees ultra-loose policy needed to help economy
NEW YORK, Jan 14 (Reuters) - U.S. government debt prices inched higher on Monday with benchmark yields near their lowest levels in about 1-1/2 weeks on the Federal Reserve's purchase of long-dated bonds and safe-haven bids due to weaker stock prices. The bond market enjoyed a late uptick after Fed Chairman Ben Bernanke offered no hints the central bank will back away from its ultra-loose monetary policy to support a still-fragile U.S. economic recovery. "Some accounts were getting long going into this week. You had some hedge funds buying earlier," said Carl Lantz, chief U.S. interest rate strategist with Credit Suisse in New York. On Monday, the Fed bought $1.47 billion in Treasuries with maturities ranging from February 2036 to November 2042, part of its $45 billion monthly purchases of government securities aimed to lower unemployment. The U.S. central bank has also been buying $40 billion in mortgage-backed securities per month since September with the goal of stimulating the housing market, whose recovery has gained traction since late 2012. This third round of quantitative easing has been dubbed QE3. With the possibility of the economy picking up and stoking inflation, the Fed's huge holdings of bonds complicate future efforts to reduce them in a timely manner. Bernanke, at an event at the University of Michigan, downplayed the Fed's $2.9 trillion balance sheet as a liability, adding that the central bank has ample tools for its exit strategy. Benchmark U.S. yields climbed to 8-month highs near 2 percent in the first week of 2013 after minutes of the Fed's December meeting showed several policymakers wanted to scale back its purchases of Treasuries and mortgage-backed securities before year-end. But worries about the fight in Washington to raise the $16.4 trillion debt ceiling and disappointing company earnings have revived the appetite for Treasuries. The U.S. Treasury Department said late Monday the United States should run out of tools to avoid a default between mid-February and early March. "That could cause a flight-to-quality and cause rates to go lower," said Bill Irving, a portfolio manager at Fidelity Investments in Merrimack, New Hampshire, who oversees about $45 billion in bonds. Benchmark U.S. 10-year Treasury notes finished 6/32 higher in price, yielding 1.844 percent after touching a low of 1.831 percent earlier. The 10-year yield ended at 1.866 percent on Friday. On Wall Street, the three major stock indexes were narrowly mixed in late trading, paring their early losses. Earlier, Chicago Fed President Charles Evans 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.
San Francisco Fed President John Williams said the central bank will need to continue with its bond purchases for "well into" 2013 to lower borrowing costs and unemployment. Atlanta Fed chief Dennis Lockhart said later in a separate event that the Fed's open-ended bond purchases are not "without bound," adding that QE3 is not "QE Infinity."