LONDON: US Treasuries rose in Europe on Thursday as investors anticipated that the Federal Reserve will start another round of bond purchases after its policy meeting later in the day though upcoming debt supply checked gains.
Treasuries recovered some of Wednesday's losses when investors shed safe-haven assets for riskier ones in the wake of a German court ruling that country to ratify the euro zone's new bailout fund, removing a major hurdle to the bloc's crisis-fighting plans.
Markets were now focused on the Fed which could embark on a third round of quantitative easing, known as QE3. It might also opt to extend the period for which it has committed to keep rates near zero, which not goes through late 2014. A Reuters poll showed economists raised their bets on QE3 to 65 percent from 60 percent in August after weak jobs data last week.
US T-note futures were last up 8/32 at 132-19/32 while benchmark yields were at 1.735 percent, down from 1.76 percent in late US trading on Wednesday.
"The expectation is that QE gets announced, the last time they did QE it surprised on the upside and the market rallied. Maybe that's the risk today because it's not unanimous that the Fed does QE," a trader said.
"This put a bit volatility. If Bernanke goes you've got a little bit of room to rally further...maybe we'll get back down to the 1.60 (percent) level (in 10-year yields)... And if he doesn't we could go back to 1.86 percent but not through it."
The Fed will release its policy statement at 1230 ET (1630 GMT), followed by its latest economic forecasts at 1400 ET (1800 GMT). Fed Chairman Ben Bernanke will hold a press conference at 1415 ET. (1815 GMT).
The 30-year bond yield fell to 2.912 from 2.917 percent in late US trading on Wednesday.
"If the Fed doesn't deliver there might be a little bit of a setback but I think it's a timing issue rather than it's not going to happen. Any sort of setback will be relatively limited from that," said Investec strategist Elisabeth Afseth.
"Risk markets could take a larger hit than Treasuries in that case but again it is a timing thing."
On the supply side, the US Treasury Department will hold a $13 billion auction of a 30-year bond at 1300 ET. (1700 GMT) on Thursday, which will coincide with several Fed events.
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