Prices gain on expectations Fed to buy bonds

NEW YORK: US Treasury debt prices rose on Thursday and yields receded in speculation the Federal Reserve will soon move to push down longer-term interest rates.

Comments from European Central Bank President Jean-Claude Trichet were also seen as indicating rates in the currency bloc will remain on hold, setting a bullish tone for government debt globally.

All eyes will be on Federal Reserve Chairman Ben Bernanke when he speaks on the US economic outlook at 1:30 p.m. (1730 GMT), with particular attention on whether he hints he is pondering extending the duration of the central bank's balance sheet. Such a program, dubbed Operation Twist by the financial industry, would probably involve selling shorter-dated Treasuries and buying longer-dated bonds.

Many analysts expect the Fed could announce the program at its next scheduled policy meeting, on Sept. 20-21.

"Operation Twist continues to get a lot of press, and Trichet came out and talked about unusual measures to stem the economic tide, and with that the market has gotten a lift," said Scott Graham, head of government bond trading at BMO Capital Markets in Chicago.

Data showing an unexpected rise in US jobless claims last week also was supportive of Treasuries prices. Continued high unemployment is seen as one of the major hobbles to the US economic recovery.

US President Barack Obama on Thursday evening will speak on the employment situation, and he is expected to unveil a jobs-creation package worth $300 billion.

Ahead of the Bernanke and Obama speeches, benchmark 10-year notes were trading 6/32 higher in price to yield 2.03 percent, down from 2.05 percent late Wednesday, while 30-year bonds were 8/32 higher in price to yield 3.36 percent from 3.37 percent.

Treasuries pared gains late on Thursday morning as stocks turned positive, eroding some of the safe-haven allure of US government debt.

"This will be an important day with Bernanke talking this afternoon and President Obama tonight. We don't know what they can do about 9 percent unemployment, but we are hopeful their words of confidence will calm the stock market, that most leading of economic indicators," said Chris Rupkey, financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

The ECB's Trichet said inflation risks in the euro zone are broadly balanced, which cemented expectations that interest rate increases are on the back burner. He also flagged slow growth ahead for the currency bloc and said even that was uncertain.

COPYRIGHT REUTERS, 2011