NEW YORK: US Treasury debt prices rose modestly on Wednesday, aided by month-end buying, as investors turned their attention to Federal Reserve Chairman Ben Bernanke's semi-annual testimony to Congress on monetary policy on Wednesday and Thursday.
"Month-end today has surely lent at least a little support to the market even if the extensions are basically average," said David Ader, government bond strategist at CRT Capital Group in Stamford, Connecticut.
Benchmark 10-year notes were up 3/32, their yields easing to 1.93 percent from 1.95 percent late Tuesday.
The European Central Bank's offer of 530 billion euros in cheap three-year funds to European banks in a move designed to ease tension in the banking sector also seemed to lift all bond boats, those of riskier sovereign debt as well as safe havens like US Treasuries and German bunds.
Italian government bond yields slid to multi-month lows and Spanish yields fell after the European Central Bank's second offering of cheap three-year funds. Italian two-year debt yields fell to their lowest since late 2010, while 10-year yields eased to their lowest since September. Spanish two-year yields also fell.
ECB liquidity helped German Bund futures to a new record high of 140.28 and a German sale of 10-year bonds drew decent demand though it coincided with the announcement of the LTRO take-up. Analysts said the underlying bid for German bonds was based on the view that the ECB cash buys the euro zone time to gets its fiscal house in order but does not solve its debt problems.
After prices briefly trimmed early gains on news of an upward revision to fourth-quarter US growth, investors turned their attention to Bernanke's testimony set for 10 a.m. (1500 GMT) on Wednesday. The Fed Chairman will testify again on Thursday.
Investors will be looking to hear both how much faith Bernanke has in the US economic recovery and whether further monetary easing is still on the table.
The Fed Chairman's tone is likely to be sober, said Oppenheimer Funds economist Brian Levitt. He will point to risks to the recovery, including the potential fiscal drag at the end of 2012 when various tax cuts are set to expire.
Levitt said the Fed intends to keep short-term interest rates near zero at least through the end of 2014, barring a significant pick-up in economic activity. When the Fed eventually raises rates, he said, the move will come after "a long lead time" so as not to disrupt financial markets.
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