LONDON: US government bonds held steady in Europe on Thursday after the Federal Reserve fell short of signalling another round of quantitative easing, but were seen turning more volatile in coming days as investors' focus turns back towards Europe.
The Fed extended an existing bond programme aimed at bringing down long-term borrowing costs, a move the market had largely priced in, but held fire on a new round of quantitative easing that some investors had hoped for.
With the Fed providing no surprises, attention has switched to Europe, where speculation is increasing that new measures to mitigate the crisis - including potentially allowing euro zone rescue funds to buy Spanish and Italian bonds in secondary markets - are in the works.
At 0940 GMT, benchmark 10-year T-note yields were 0.3 basis points higher at 1.6537 percent. US bonds were generally steady across the curve and T-note futures were 5/64 lower at 133-04/32.
"The Fed left every asset class with a deep breath and shrug of the shoulders," one trader said.
"I don't mind buying Treasuries, but I don't want to buy them here. I want to see 1.68-1.70 in yield. I do want to get long because the capacity of Europe to disappoint should not be underestimated," the trader added.
Madrid will release the results of an independent audit of its banks later in the day and possibly make a formal request for European funds to prop them up. Euro zone finance ministers have already agreed to lend Spain up to 100 billion euros to rescue its banking sector but analysts increasingly believe the country will need a full-scale bailout.
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