Prices rise as market bets on Fed QE signals
LONDON (Reuters) -
U.S. Treasury debt prices pushed higher in European trade on Tuesday as some traders bet that the Federal Reserve may signal an expansion of its quantitative easing programme of Treasuries purchases. The Fed is widely expected to keep monetary policy unchanged with the focus on the wording of its policy statement for any suggestion it might make a transition from targeting ultra-low interest rates to targeting its own balance sheet.
In August the Fed began reinvesting the proceeds of its mortgage-backed securities holdings through new Treasury purchases.
T-note futures TYv1 added 6/32 to 124-19/32 by 1125 GMT (7:25 a.m. EDT) while in the cash market, the 10-year T-note rose 8/32 in price to yield 2.677 percent, two basis points more than in late New York trade on Monday.
"Our view is that the economy won't be weak enough to warrant any further QE but the market seems to be betting that the Fed will at some point start buying government bonds again and that's clearly providing good support for the market," said Nick Stamenkovic, a rates strategist at RIA Capital Markets.
"If the Fed signal that they are not taking any imminent action and are keeping the door open, the market could be in for disappointment particularly if the Fed paints a more rosy picture of recent economic data than it did a the August FOMC meeting. That would be a dampener for Treasuries."
The 30-year T-bond continued to see robust demand from a search for yield, jumping 16/32 in price to yield 3.844 percent, down 2.5 bps on the day.
The 10/30-year curve flattened slightly to 116 bps from 117 bps late in New York on Monday as the gains at the long end ofthe curve unwound some of the steepening seen after
Japan's intervention in the currency market last week as some bet that it would use the dollars bought to buy short-dated Treasuries.
With the market focus on the prospects of getting a steer about the next phase of quantitative easing, some strategists said the Absence of any new hints at easing could lead to a pullback in Treasuries.
"Several Fed governors have offered contrasting recipes about what, if anything, to do next.
So our economists doubt that Bernanke has been able to build consensus in favor of more action at this stage," Ciaran O'Hagan, a strategist at Societe Generale, said in a note.
...ciao a tutti 
