NEW YORK: US Treasuries yields edged up o n W ednesday as investors waited on a highly anticipated European Central Bank meeting on Th ursday, when the central bank is expected to take aggressive actions to try to stem the euro zone's debt crisis and preserve the currency union.
Bloomberg reported on Wednesday that ECB President Mario Draghi's plan would involve unlimited, sterilized buying of government bonds by taking interest-bearing deposits from banks every week matching the amount spent on the bonds.
The ECB has been expected to be cautious about disclosing the size of its bond-buying, given opposition from Germany's central bank.
Central bank sources also told Reuters on Wednesday that the ECB is ready to waive seniority status on government bonds it buys under the new program, which would mean investors would not rank lower in any restructuring of euro zone sovereign debt, making the bonds more attractive to private investors.
"A lot of details were leaked out today, so it takes out some of tomorrow's trading thrill," said Rick Klingman, a Treasuries trader at BNP Paribas in New York.
High expectations for action nonetheless raise the risk that markets will be disappointed by the central bank's post-meeting statement. Italy and Spain also still need to request help before any formal program of bond buying may begin.
"I don't think we're going to see it any time in the near future, so there might be some disappointment tomorrow that there are no concrete steps actually being taken," Klingman added.
Benchmark 10-year Treasuries yields have edged up from four-week lows on Friday, when bonds had rallied on dovish comments on US unemployment by Federal Reserve Chairman Ben Bernanke.
The notes last traded at 1.60 percent, up from 1.57 percent late o n T uesday. The debt has been largely rangebound in the past two tradingsessions.
"There are plenty of concerns out there. I think positioning is pretty light," said Carl Lantz, interest rate strategist at Credit Suisse in New York. "People want to believe, but the ECB has disappointed so many times in the past."
One source told Reuters that the Governing Council wants to have some room for maneuver to be able to decide spending on a case-by-case basis. Another source said the Council would monitor the purchases very closely and could organize daily conference calls if needed.
Relatively light position-taking ahead of the ECB statement may also dampen moves afterward.
"I think it's unlikely that Draghi will disappoint in a big way. It will come down to detail and if there is enough there to prevent selling of risk assets in the periphery," Lantz said.
Attention after the ECB meeting is expected to turn quickly to the highly anticipated US employment data on Friday.
Investors will scrutinize the payrolls report for signs of whether economic growth is sluggish enough to spur Bernanke to launch new stimulus to try to reduce the stubbornly high jobless rate.
Expectations are high that the Fed will announce a third round of bond purchases when it delivers its statement from its September meeting on next week, a move that would likely be bullish for US government bonds.
"I think everyone has come to the conclusion that the Fed is going to do QE3 next week," said BNP's Klingman. "I don't think payroll is going to matter unless it's really weak or really strong."
The data is expected to show that US employers added 125,000 jobs to their payrolls in August, according to the median of 87 economists surveyed by Reuters.
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