Prices rise in line with global bonds as BOE covers auction

NEW YORK: US Treasury prices edged up on Wednesday in line with global bonds, as limited economic data and concern about the continued effectiveness of central banks gave safe-haven U.S. government debt a modest bump.

Prices rose early in the North American session, touching session highs just before 9 a.m. EST (1200 GMT).

But prices pared gains after the Bank of England (BOE) fully covered its asset purchase operation of 1.17 billion pounds ($1.52 billion) worth of British government debt with maturities between seven and 15 years.

"We're just sort of tracking alongside," said Priya Misra, head of global rates strategy at TD Securities. "Moves in the UK actually pared back after the auction, so I think that explains why the U.S. rate move has also faded a bit from earlier."

The British central bank has been buying government bonds as part of its efforts to stimulate the economy. But the BOE fell 52 million pounds ($68 million) short of its target on Tuesday, which prompted a wave of buying in British markets that also pushed investors into U.S. government debt.

The BOE's inability to carry out its reverse auction on Tuesday and the possibility of coming up short in its bond buying Wednesday fueled investor concern that central bank policy has reached its limit, said Subadra Rajappa, head of U.S. rates strategy at Societe Generale.

"It comes down to the same subject - how much can central banks really do on the monetary policy front," Rajappa said. "They're starting to reach their limits on asset purchases not just in the UK, but in Japan. That's what's ultimately the issue here."

U.S. Treasuries offer yields about three times higher than British government bonds, also known as gilts. Ten-year Treasuries are yielding nearly 1 percentage point above their U.K. counterparts, the most since June 2000, according to Reuters data.

The benchmark 10-year Treasury note was last up 6/32 in price to yield 1.526 percent. The 30-year Treasury bond rose 12/32 in price to yield 2.241 percent.

In London, 10-year gilts hit a new all-time low in yield, falling to 0.515 percent.