US bonds firm on bets of Fed help

NEW YORK: US Treasuries prices rose on Tuesday on bets of stimulus from the Federal Reserve to help a flagging economy and on solid demand at a $35 billion two-year auction.

Disappointing data on new home sales and US central Atlantic factory activity fuelled expectations that the US central bank could engage in another round of quantitative easing. Many traders are hoping Fed Chairman Ben Bernanke later this week will signal more stimuli in order to avert another recession.

"Treasuries are finding a little support on what Chairman Bernanke might say on Friday," said John Canavan, market strategist at Stone & McCarthy Research Associates in Princeton, New Jersey.

On Friday, Bernanke will speak at 10 a.m. (1400 GMT) on the economy at a central bank conference in Jackson Hole, Wyoming. A year ago, at the same event, he signalled a $600 billion Treasuries purchase program, known as QE2, aimed to avert deflation and to stimulate investments and spending.

News of an earthquake centred in Virginia that shook parts of the US East Coast fuelled a fresh wave of safe-haven bids for US government bonds in early afternoon on Tuesday, sending longer-dated Treasuries prices to session highs.

Bets that the Fed will launch a new round of quantitative easing by the Fed, or QE3, and solid bidding for the latest two-year supply despite a record low yield were somewhat offset by gains on Wall Street and other risky assets.

In the open market, two-year notes last traded flat in price for a yield of 0.22 percent, little changed on the day.

Benchmark 10-year Treasury notes were last up 5/32 in price for a yield of 2.10 percent, down 1 basis point on the day.

Copyright Reuters, 2011