TOKYO: US Treasuries were supported in Asia on Thursday, with yields paring much of their rise since the Federal Reserve' stimulus steps on growing views that such aggressive easing may not trigger inflation.
The 10-year notes traded at a yield of 1.768 percent , little changed from the late US session but near the lowest level since last Friday.
Although it is still above the level just before the Fed announced a new asset purchase programme, dubbed as QE3 in markets last Thursday, of around 1.72-73 percent, it has come down a fair bit from a four-month high of 1.894 percent hit last week.
"The market initially bet on steepening in the curve, thinking that the Fed's QE3 might stoke inflation. But as the market calmed down, there came the realisation that you never know whether the Fed can create inflation. After all, the means the Fed is using is no different from QE1 or QE2," said Tomoaki Shishido, fixed income analyst at Nomura Securities.
Fear of inflation helped to push the spread between two and 30-year yields to a four-month high of 284 basis points last week but it slipped back to around 270 basis points.
"As short-term note yields stay low because of the Fed's commitment to low rates for a long period of time, long-term bond yields can rise only so much," said Nomura's Shishido.
Bonds were also supported by worries over slower global growth, with market players now closely watching the Philadelphia Fed's factory activity index due at 1400 GMT. Economists expect the pace of contraction to have eased slightly this month from August.
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