US bond prices gain

US Treasuries prices gained on Thursday after the European Central Bank dashed hopes of a broad bond purchase program and investors reduced expectations that eurozone leaders will present a far-reaching solution to contain the region's debt crisis. ECB President Mario Draghi said that the eurozone's rescue fund, not the central bank, should remain the main tool to fight bond market contagion.
Investors had been hoping that the ECB would introduce new quantitative easing measures if EU leaders reach an agreement on Friday to reign in budgets and reduce unsustainable debt loads. "The market was looking for an unabashed ECB bazooka. Draghi's comments delivered less than that," said Russ Certo, head of rates at Gleacher & Co in Stamford, Connecticut.
The ECB did, however, show that it is committed to loosening credit conditions and ensuring the flow of funds as it cut its benchmark interest rate to 1 percent, loosened collateral requirements for loans and extended loan maturities as far as three-years. Markets are now anxiously focused on Friday's EU Summit, where traders are seeking answers about the size and structure of any new rescue funds, how budget treaties will be enforced and a plethora of other questions over the future of the region.
"There isn't going to be any magic bullet here. They are going to probably show some type of progress but this isn't the type of situation where there is going to be one announcement, and its going to be taken care of," said Alan De Rose, head trader of government bond trading and finance at Oppenheimer & Co in New York.
The Treasury said on Thursday it will sell a combined $78 billion coupon supply next week. It will auction $32 billion in three-year debt on Monday; $21 billion in 10-year notes on Tuesday; $13 billion in 30-year bonds on Wednesday and $12 billion in five-year Treasury Inflation-Protected Securities on Thursday. Benchmark 10-year note yields have largely traded within a range between 1.90 percent and 2.10 percent since the beginning of November. They last traded up 18/32 in price to yield 1.98 percent, down from 2.03 percent late on Wednesday.
Given their preoccupation with Europe, traders shrugged off a bigger-than-expected drop in weekly US jobless claims. First-time filings for unemployment benefits fell to a nine-month low of 381,000 last week, the US Labour Department said. Meanwhile, the Federal Reserve bought $4.62 billion in Treasuries due in between 2020 and 2021, part of its $400 billion Operation Twist that is aimed at holding down long-term borrowing costs to help the slow-growing US economy. It also sold $8.63 billion in notes due next year.