TREASURIES-U.S. bond prices firm before Bernanke's testimony
* Bernanke seen voicing support for continued bond purchases
* ECB loan repayment news offsets rise in German sentiment
* Benchmark U.S. yields remain locked in tight 13-bps range
NEW YORK, Feb 22 (Reuters) - U.S. Treasuries prices edged higher on Friday in the absence of key U.S. economic data, as investors prepared for testimony next week from Federal Reserve Chairman Ben Bernanke, which will be scoured for clues of when the central bank may slow or stop buying bonds. Since Wednesday's release of the Federal Open Market Committee's minutes of its Jan. 29-30 meeting, investors have coalesced around the view Bernanke will likely reassure markets and U.S. lawmakers that the Fed is committed to its third round of quantitative easing, dubbed QE3, at least through the end of the year in an attempt to reduce unemployment. Bernanke, who is the architect of the Fed's current near-zero interest rate policy and bond purchase program, will testify before the Senate Banking Committee on Tuesday and the Housing Financial Services Committee on Wednesday. "Bernanke will likely remind us that the Fed will remain accommodative through the end of the year," said Andrew Richman, fixed income strategist at SunTrust Private Wealth Management in Palm Beach, Florida. Such a view from Bernanke will likely soothe anxiety from the latest FOMC minutes and comments from some top policy-makers that the Fed might reduce their bond purchases before year-end. On Friday, Boston Fed President Eric Rosengren and Fed Governor Jerome Powell defended the Fed's bond buying, which is running at $85 billion a month. A continued generous amount of Fed stimulus will likely support this year's solid gains in stock prices and commodities markets and hold benchmark yields in a tight trading range, investors and analysts said. Since Jan. 25, the yield on the 10-year Treasury note has traded in a 14 basis point range. It rarely closed 5 basis points on either side of 2 percent. On Friday, the 10-year note was 2/32 higher in price at 100-10/32, yielding 1.964 percent, down 1 basis point from late on Thursday. The 10-year yield was on track to close 4 basis points lower in an abbreviated trading week. The 30-year bond was up 7/32 with a yield of 3.15 percent, down 1.2 basis points from late on Thursday. The 30-year yield was set to fall nearly 3 basis points on the week. Bond gains were limited on revived buying in stocks, which investors sold heavily on Wednesday and Thursday on worries about Fed reducing its stimulus. Wall Street stocks were higher in late trading with the Standard & Poor's 500 index rising 0.8 percent.
BOND-FRIENDLY FACTORS Treasuries began the day trading lower in price, with traders citing a small increase in selling pressure after the German Ifo sentiment survey beat forecasts and offset some pessimism about euro zone growth prospects. Losses were tempered by news that banks in Europe will repay less than half the expected amount of crisis loans they took from the European Central Bank a year ago, which suggested much of the euro zone financial system was still dependent on cheap ECB funds. Treasury debt prices were also supported by worries over the economic impact of automatic U.S. government spending cuts set to begin March 1. Few analysts expect Democrats and Republicans to reach agreement on averting these "sequester" cuts ahead of the deadline. Economists said these cuts worth $85 billion would hurt the economy and lead to job losses. "We have a lot of headline risk from the sequester. That's scary ramification that might be good for Treasuries but bad for economic growth," said Mike Lorizio, head of Treasuries trading at Manulife Asset Management in Boston. Investors were also reluctant to part with lower-risk assets like Treasuries heading into the Italian national elections on Sunday and Monday as the country struggles in a deep recession.
Risk from Washington and Europe will likely stoke bids for next week's government debt supply, totaling $99 billion, traders and analysts said. The Treasury Department will kick of next week's auctions with a $35 billion sale of two-year notes on Monday. It will be followed by a $35 billion of five-year debt auction on Tuesday and $29 billion of seven-year note sale on Wednesday.