Treasuries move up

US Treasury debt prices rose on Thursday as dwindling expectations of an economic fix from Federal Reserve Chief Ben Bernanke put the focus back on the country's weak growth outlook and worries over the European debt crisis. A Wall Street stocks selloff and solid demand at a $29 billion auction of seven-year notes also bolstered demand for US government debt, traders and investors said.
A scheduled speech by Bernanke on Friday at an annual central banker conference in Jackson Hole, Wyoming, has sparked intense speculation on whether he may hint at a new round of stimulus to spur the flagging US economy scheme. At last year's conference in Jackson Hole, Bernanke had hinted at a second round of quantitative easing. He is to speak on Friday at 10 am EDT (1400 GMT).
"Expectations have changed the past few days," said Ralph Axel, interest rates strategist at Bank of America Merrill Lynch in New York. "A lot of Wall Street firms are now harping: 'Don't expect much from the speech.'" Weak but not dismal reports on jobless claims and durable goods, and some stabilisation in the stock market this week have reduced investor confidence that the Fed could soon pursue another round of easing, less than two months after its $600 billion bond purchase program ended.
Firms including Bank of America say Bernanke will likely lay out the Fed's remaining options to help the economy, with a focus on using money from maturing bonds the Fed owns to buy long-dated Treasuries. Such a move would help lower mortgage rates and other long-term borrowing costs.
The recent flood of disappointing data has raised the pressure on the Fed to do more, but mixed results from the recently ended second round of quantitative easing, or QE2, together with blistering criticisms would make Bernanke cautious on engineering another round of monetary stimulus, analysts said. Still the urgency for another Fed rescue could intensify, if the government downgrades the second-quarter US gross domestic product to below the precarious 1 percent threshold from the originally report 1.3 percent annualised rate.
"That could be a very big hit on confidence," Axel said. The median forecast among economists polled by Reuters is for a downward revision growth of 1.1 percent. Given the worries over Bernanke's speech and the possible magnitude of a GDP downgrade, investors socked some cash back into Treasuries after Wednesday's sell-off. Benchmark 10-year Treasury notes finished 19/32 higher in price to yield 2.23 percent, down 7 basis points from late on Wednesday, while 30-year bonds ended up 1 point to yield 3.60 percent, down 6 basis points on the day.
Treasuries began the day higher after a bigger than expected rise in new claims for US jobless benefits stirred nagging worries about lofty US unemployment. Thursday's rise in Treasuries prices, and the overall comparatively low level of yields, raised some doubts about demand in the seven-year notes auction. As it turned out, the latest seven-year supply fetched higher demand than July's auction. The only downside to the seven-year auction, the last leg of this week's $99 billion in coupon-bearing supply, was that its record low yield of 1.580 percent came in slightly above expectations.