TREASURIES-U.S. bond prices rise on data, Fed bond purchase view
* Disappointing data renew worries about U.S., euro zone
* Reduced fears of Fed purchases feed bids for bonds
* Benchmark yields briefly post biggest one-day fall in two weeks
* 30-year TIPS supply fetches higher-than-expected yield
NEW YORK, Feb 21 (Reuters) - U.S. Treasuries prices rose on Thursday as renewed worries about Europe's economic recovery and sluggish domestic jobs and business conditions led investors to buy less risky government debt. Benchmark yields were briefly on track for their biggest single-day fall in about two weeks, as traders reconsidered the record of the Federal Reserve's Jan. 29-30 policy meeting, which was released on Wednesday. They concluded the U.S. central bank will likely stay committed to purchasing bonds through the end of the year, not earlier as they had feared. Bets the Fed might slow or stop its third round of large-scale bond purchases, dubbed QE3, before year-end, together with encouraging U.S. data and perception of improvement in Europe's debt predicament, propelled Treasury yields to 10-month highs last week. "There were some sobering data. They are a reminder that we don't have a rip-roaring economy," said Robert Tipp, chief investment strategist with Prudential Fixed Income in Newark, New Jersey. Bond prices rose initially as surveys showing unexpected worsening in business conditions across the euro zone this month undermined hopes the region might soon emerge from recession.
The market advance accelerated after U.S. government data showed new filings for unemployment benefits rose by more than expected last week and the Federal Reserve Bank of Philadelphia's index of business conditions in U.S. Atlantic states fell to its lowest in eight months. Moreover, nagging concerns about possible steep government spending cuts caused some safe-haven bids for Treasuries. U.S. President Barack Obama and top Republican lawmakers have been unable to reach a deal to avert board "sequestration" cuts that are set to kick in on March 1. Economists said these cuts worth $85 billion would hurt the economy and lead to job losses. Benchmark 10-year Treasury notes were 8/32 higher in price to yield 1.983 percent, down 2.7 basis points from Wednesday but still well within the 1.93 percent to 2.06 percent range that has held sway for over three weeks. The 30-year bond last traded 18/32 higher for a yield 3.170 percent, down 3.1 basis points from Wednesday. It traded up as much as 1 point in price earlier.
FED MINUTES RECONSIDERED U.S. Treasuries prices climbed for a second day after they weakened briefly on Wednesday as the latest minutes from the Federal Open Market Committee showed policymakers discussed slowing or stopping Federal Reserve bond purchases aimed at reducing unemployment. Fears that the catalyst that has lifted stock prices and home values might go away sent investors scrambling out of U.S. equities, which had reached five-year highs this week, into Treasuries and other perceived safe-haven investments. "That's bad for risky assets and caused a shift from stocks and risky assets into Treasuries," Prudential's Tipp said. Two top Fed officials - St. Louis Fed president James Bullard and Dallas Fed president Richard Fisher - signaled on Thursday support to reduce the central bank's bond purchases, which are currently at $85 billion a month, while another, San Francisco Fed chief John Williams, favored such a move until well into the second half of the year. While their remarks did not quell speculation about the Fed's path toward exit from its ultraloose monetary policy, they reduced anxiety that policy-makers are close to making a decision about the end of QE3. "The bottom line is that the Fed wants to leave the door open to decide when they will scale back their purchases. The market got ahead of itself," said Sean Simko, head of fixed income management at SEI Investments Co. in Oaks, Pennsylvania. On Thursday, the Fed bought $3.646 billion of Treasuries maturing November 2018 through February 2020 as a part of its QE3. On the supply front, the bidding for $9 billion of new 30-year Treasury Inflation Protected Securities was modest after the government said earlier its consumer price index, its broadest inflation gauge, was unchanged in January. Analysts had forecast a 0.1 percent increase. The bid-to-cover ratio, a gauge of overall demand, was 2.47, which was the lowest in three 30-year TIPS auctions. The yield on the new 30-year TIPS issue came in at 0.639 percent, more than 2 basis points higher than what traders had expected, while large investors and foreign central banks bought more than three-quarters of the supply. More Treasuries supply will hit the market next week when the government will sell a combined $99 billion of two-, five-and seven-year notes.