September 17, 2012 / 8:28 AM / 5 years ago

TREASURIES-U.S. Treasuries pause after Fed-fueled sell-off

LONDON, Sept 17 (Reuters) - U.S. Treasuries were steady on
Monday, stabilising after a sell-off in longer-dated bonds last
week as the Federal Reserve's latest stimulus announcement
underpinned riskier assets.
    
    * Ten-year U.S. Treasuries yields were little
changed at 1.87 percent, with one trader expecting them to test
2 percent, perhaps as soon as this week. The yield hit its
highest since May on Friday at 1.89 percent.
    "The flight to quality bid has left the market (somewhat),"
the trader said.
    
   * In addition to U.S. central bank support, in the form of
more quantitative easing, a series of events in Europe which
could have unsettled markets have instead given investors some
confidence that policymakers could make headway in stemming the
euro zone debt crisis.
    
    * They include the European Central Bank's commitment to buy
unlimited amounts of government bonds, if a country asks the
euro zone rescue fund for help, and the German constitutional
court's decision to allow the rescue fund to go ahead.
       
    * "You can argue the merits of QE3 (third round of
quantitative easing) but at the end of the day you still have to
play the market and the current move is to sell fixed income and
buy risky assets," the trader said.
    
    * The Fed said on Thursday after a two-day policy meeting
that it would buy $40 billion a month in mortgage-backed bonds
on an open-ended basis. It also prolonged its pledge to keep
interest rates near zero until mid-2015, from late 2014.
 
    
    * Thirty-year U.S. yields were little changed at
3.09 percent, hovering near their highest level since May when
they stood at 3.121 percent.
    
    * "The market is right in (driving) yields higher at the
moment because there is a lot of uncertainty that has been
reduced especially in Europe and of course we have this boost
from QE3," Philip Marey, strategist at Rabobank said.
    
    * "For (yields) to go further upwards, we should have a
stronger (U.S.) recovery and we are not having that, and to go
much lower, you would need something like Spain not willing to
apply for ESM (euro zone rescue funds)," Marey said.
    
    * As a result, Marey expected 10-year U.S. yields to trade
more or less sideways at around 1.90 percent over the next few
weeks.

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