US Treasury debt prices ended flat on Wednesday as the omission of any hint of new stimulus from the Federal Reserve offset worries over a Greek default, leaving little reason for traders to add or exit their bond holdings. Greek Prime Minister George Papandreou and his new government won a parliamentary confidence vote overnight. But nagging doubts over the debt-laden nation's ability to implement strict measures to cut spending continued to unnerve investors.
The initial safe-haven gains in bonds from the Greek vote faded after the Federal Reserve offered no hint its latest policy statement that it will enact another bond purchase program to stimulate an economy that is showing signs of fatigue. "People were looking for something dovish, and they didn't get it," said Richard Gilhooly, fixed income strategist at TD Securities in New York.
The US central bank said it will complete its $600 billion Treasuries buying scheme, known as QE2, at the end of June. Earlier, Bill Gross, co-chief investment officer of PIMCO, the world's top bond manager, said on Twitter that Fed Chairman Ben Bernanke will likely hint at a third round of bond purchases at the Jackson Hole meeting in August.
"Not even a hint to QE3. I think things would have to get pretty bad for them to reveal QE3 - seriously bad," said Gennadiy Goldberg, fixed income analyst at 4Cast Inc in New York. Benchmark yields hovered a tad below 3 percent, while interest rate futures signalled traders still expect the Fed will not raise rates until late next year.
The yield curve ended little changed on the day with the gap between two-year and 10-year yields holding at 261 basis points. Greece must still approve tough austerity measures essential to get fresh funds from the European Union and the International Monetary Fund. "It's a positive development, but the pain of raising taxes and cutting benefits to the Greek people are still ahead," said Sam Wardwell, investment strategist at Pioneer Investments in BBoston.