LONDON: Treasuries edged lower in European trade as investors scaled back bets for further economic stimulus after Federal Reserve Chairman Ben Bernanke gave no hints that more easing was in the pipeline.
Bernanke offered a cautious view of the US economy, but stopped short of signalling further Fed bond purchases.
In contrast, the European Central Bank flooded the market with another 530 billion euros in cheap three-year cash on Wednesday, its second and so far last such offering aimed at easing tension in the banking sector.
Treasuries slightly underperformed their German counterparts, widening the 10-year yield spread by two basis points to 18 bps as Bunds continued to find support from the ECB's liquidity splurge.
The yield on the 10-year T-note rose to 2 percent from 1.97 percent in late US trade. The benchmark yield is expected to remain around the middle of the range between 1.79 percent and 2.17 percent in which it has been stuck since early November with investors using any dips in prices as a buying opportunity.
"(Bernanke's comment) wasn't necessarily a change in policy but the market was disappointed he didn't allude to further QE," a trader said.
"But he (also) said the Fed target is between zero and 25 bps to 2014 rather than the upper band people were thinking. So any sort of pullback in bonds will be limited."
The Fed's Operation Twist, which involves selling shorter-dated securities and using the proceeds to buy longer-dated securities will also curtail a sell-off in Treasuries, the trader said.
"The scheduled has changed as they are reducing purchases in 7s but increasing 10s, 20s and 30s and that stronger demand in the back end will continue to help the market as a good buying opportunity each time it cheapens up," he said.
The yield on 30-year Treasuries rose to 3.11 percent from 3.08 percent in US trade.
Later on Thursday, the nationwide Institute for Supply Management manufacturing index could show more US economic improvement in February. The median forecast of economists recently polled by Reuters was 54.5, up from 54.1 in January.
Goldman Sachs on Wednesday raised its forecast to 55.0 from 54.0 after data showed surprisingly strong business growth in the US Midwest in February.
The ISM-Chicago's regional business index rose to a higher-than-expected 64.0 in February, the highest since March 2011.
Further improvement in the data would probably see expectations of QE3 further deteriorate, strategists said.
"The impact on two-year yields will likely be limited with Fed rates likely to stay low until 2014," Lloyds strategist said in a note.
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