US 10-year notes dented by rise in stocks

In his closely watched speech at a Fed conference in Jackson Hole on Friday, Bernanke stopped short of detailing further action the Fed might take to boost the US recovery.

But he said the Fed would extend its policy meeting next month to two days (Sept 20-21) to consider its options, stirring talk that the central bank may adopt some form of additional monetary stimulus as early as September and giving equities some lift.

Ten-year notes dipped about 5/32 in price to yield 2.209 percent, up around 1 basis point from late US trade on Friday. The 10-year yield had dipped to about 1.98 percent earlier in August, its lowest in at least 60 years. Ten-year note futures fell 6/32 to 130-3/32.

In the stock market, S&P futures rose 0.7 percent and MSCI's index of Asia-Pacific shares outside Japan climbed 1.9 percent.

Losses in Treasuries were limited due to uncertainty about the US economy's outlook, said Tomohisa Fujiki, interest rate strategist for BNP Paribas Securities in Tokyo.

"Equities still haven't returned to levels seen before the recent sell-off, and bonds are still hovering near their recent highs. It seems investors are taking a wait-and-see stance amid an uncertain outlook," Fujiki said.

Regarding the outlook for monetary policy, BNP Paribas' house view is for the Fed to launch a fresh asset-buying programme in November, Fujiki said.

Before taking such action, the Fed may decide at its meeting in September to take steps such as extending the duration of its bond holdings or adopt measures to help ease dollar funding strains, Fujiki said.

The US bond market will operate as normal on Monday, the Securities Industry and Financial Markets Association said on Sunday, after Hurricane Irene plowed up the Eastern seaboard but steadily lost strength, leaving less damage than some had feared.

Copyright Reuters, 2011