TREASURIES-U.S. bonds gain in easing concerns over rising rates
* Fed's Bernanke talked down expectations of tighter Fed policy Rates futures imply reduced outlook on rate hike next year
* Thirty-year supply set to sell at highest yield since 2011
* U.S. jobless claims unexpectedly rise in latest week
NEW YORK, July 11 (Reuters) - U.S. government debt prices rose on Thursday as investors perceived remarks by Federal Reserve Chairman Ben Bernanke as suggesting the U.S. central bank would hold interest rates near zero for an extended period even after it stops buying bonds. Revived bids for Treasuries should spur demand at a $13 billion auction of 30-year bonds, the final leg of this week's $66 billion in coupon-bearing supply, analysts said. "It was enough of a boost and takes some of the (rate hike) talk out," Ellis Phifer, senior market analyst at Raymond James in Memphis, Tennessee said of Bernanke's comments. Short-term interest rate futures implied traders reduced their expectations of a Fed rate hike next year, on Thursday suggesting a 42 percent chance of a rate increase at the Fed's policy meeting in September 2014. That was down from 52 percent at Wednesday's close, before Bernanke spoke, according to CME Group's FedWatch, which computes traders' expectations on the fed fund rate that the Fed influences through monetary policy. Another factor behind the bids for Treasuries was an unexpected rise in U.S. jobless claims in the latest week, casting some doubts on the recent acceleration in job growth - which is seen as critical in the Fed's decision whether to scale back its bond purchases, currently at $85 billion a month.
Bernanke, at a conference Wednesday sponsored by the National Bureau of Economic Research, said a "highly accommodative policy is needed for the foreseeable future."
Also on Wednesday, the Fed released the minutes of its June 18-19 policy meeting, which showed about half of the policymakers felt the central bank's bond-buying program should be over by year-end, but many wanted reassurance the U.S. jobs recovery was on solid ground before any policy retreat.
After that meeting of policymakers, Bernanke laid out a roadmap on a possible reduction of the Fed's third round of quantitative easing, dubbed QE3, which many on Wall Street anticipate might occur in September. As part of its ongoing bond-buying program, the Fed on Thursday purchased $1.28 billion in Treasury Inflation-Protected Securities. Meanwhile, the U.S. Treasury Department said it will sell $15 billion in 10-year TIPS next Thursday. Since the Fed first signaled its intention for a possible pullback in stimulus, financial markets have been roiled, with bond yields here and abroad surging. On Monday, benchmark Treasury yields touched their highest levels in nearly two years. In recent days, Bernanke and other top Fed officials have sought to soothe the concerns of market participants by trying to differentiate between reducing stimulus or buying fewer Treasuries and mortgage-backed securities, and tightening policy or raising short-term interest rates. It is unclear whether they have achieved the goal of calming investors, but bond yields retreated from their recent peaks. "We tend to be range bound in rates at this point in the next month or two," said David Lafferty, chief investment strategist at Natixis Global Asset Management in Boston, which oversees about $785 billion. On above-average volume, benchmark 10-year Treasury notes last traded 20/32 higher in price with a yield of 2.598 percent, down 7.6 basis points from late Wednesday. The 10-year yield touched a session low of 2.553 percent, which was 20 basis points below the 23-month high set on Monday in the wake of a surprisingly strong June payrolls report late last week. The 30-year bond was up as much as 1-1/2 points in overnight trading before retreating due to selling ahead of the auction. The long bond last traded up 14/32 with a yield of 3.655 percent, down 2.7 basis points from Wednesday. "Right now we are oversold. We are seeing some buying coming back," said Raymond James' Phifer. Despite the market rebound, the 30-year bond auction was still on track to fetch its highest yield since August 2011. In the "when-issued" sector, traders expected the reopening of the 30-year bond issue due in May 2043 to sell at a yield of 3.665 percent. Mortgage-backed securities also posted gains after Bernanke's remarks. Prices on 3.5-percent coupon MBS supported 6/32, yielding 3.427 percent, down 4.7 basis points from late on Wednesday.