TREASURIES-Bond prices rise after Bernanke remarks
* Bernanke says highly accommodative policy needed for foreseeable future
* Bernanke cites low inflation, restrictive fiscal policy
* Bernanke says Fed somewhat optimistic on U.S. economic outlook
* U.S. to sell 30-year notes on Thursday
NEW YORK, July 10 (Reuters) - U.S. Treasuries prices rose in late trade on Wednesday after Federal Reserve Chairman Ben Bernanke said highly accommodative monetary policy would be needed for the foreseeable future. Bernanke said the U.S. central bank was somewhat optimistic on the outlook for the economy, but added that inflation was low and fiscal policy was quite restrictive. The U.S. benchmark 10-year Treasury note, down 13/32 before his remarks were published, was up 3/32 afterward, its yield easing to 2.626 percent. Bernanke said the Fed would continue to pursue an accommodative monetary policy as inflation remained low and the employment rate might be overstating the health of the labor market. "The overall message is accommodation," he said at a conference sponsored by the National Bureau of Economic Research. Bernanke said a "highly accommodative policy is needed for the foreseeable future." Markets recently sold off amid fears that the Fed may begin to reduce its monthly bond-buying program. Bernanke said the current unemployment rate of 7.6 percent "if anything overstates the health of the labor market" and said the central bank would not automatically raise interest rates when the unemployment rate hits 6.5 percent. The housing market is a bright spot in the economy, Bernanke noted, adding that the Fed is "somewhat optimistic" for the outlook on the U.S. economy. Before Bernanke spoke, the market was headed to a lower close as traders cut prices to help distribute new supply. The Treasury sold $21 billion of 10-year notes on Wednesday and will sell 30-year bonds on Thursday. The release of the Federal Reserve's minutes from its June policy meeting highlighted more of the committee's more dovish predilections than the market had anticipated and prices rallied at first, erasing losses and moving into the plus column. But prices subsequently shifted back into negative territory. "Even though the minutes were more dovish than expected, their impact was somewhat discounted by the continued strength in the labor market that was seen after the Fed's last meeting," said Jake Lowery, Treasury trader at ING Investment Management in Atlanta, Georgia. Traders said the Treasury's sale of 10-year notes got a "soft" reception in a low-volume trading day, with non-dealer participation on the low side. Before Thursday's 30-year bond auction, 30-year bond prices were down 2/32. Earlier in the session they had been down nearly a full point. Their yields stood at 3.65 percent. Since the June Federal Open Market Committee meeting and an upbeat June payrolls report last Friday, Treasury yields have climbed and were at 23-month highs Monday before they retreated on bargain-hunting and short-covering. The spike in bond yields has caused a jump in mortgage rates, which some economists worry might hurt the housing recovery. The Mortgage Bankers Association said on Wednesday 30-year mortgage rates averaged 4.68 percent last week, the highest level in two years and up 10 basis points from the prior week.
Rising borrowing costs have reduced loan demand to buy homes and to refinance. The group's mortgage activity index for last week fell to its lowest level since mid-March, while its index on refinancing hit its lowest level in two years.
As part of its ongoing bond-buying program, the Fed on Wednesday bought $3.69 billion in Treasuries that will come due April 2019 through June 2020.