U.S. bonds down as QE3 timing reassessed

Thu Mar 1, 2012 3:58pm EST
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By Chris Reese

NEW YORK (Reuters) - U.S. Treasury debt prices fell on Thursday as a pushback in expectations on when the Federal Reserve might launch another round of monetary easing continued to weigh on the market and riskier assets drew money away from safe-haven debt.

Testimony by Federal Reserve Chairman Ben Bernanke on Wednesday had initially sparked selling when his remarks failed to hint at a new round of quantitative easing, or QE3.

And Bernanke's question and answer session with the Senate Banking Committee on Thursday did not change that impression.

"There's a reassessment of where the Fed is going, and some long positions are getting liquidated," said Kevin Flanagan, executive director and fixed-income strategist at Morgan Stanley. "The market felt heavy in an environment of non-imminent QE3. That doesn't mean they're not going to give you QE3, but the market had priced it in as coming sooner, rather than later."

Stocks rose as investors focused on positive jobs numbers among a mixed bag of data.

The government said U.S. jobless claims edged lower in the latest week, holding near four-year lows, suggesting the labor market was gaining momentum. On the other hand, the Institute for Supply Management said its index showed the pace of manufacturing growth slowed in February.

A decision by the International Swaps and Derivatives Association that Greece's recent moves to prepare for a debt restructuring had not triggered a payout on credit default swaps also damped demand for Treasuries.

"If you're not going to have a CDS event provoked, there's less need for safe-haven debt so you might as well sell some Treasuries," said Cary Leahey, managing director and senior economist at Decision Economics in New York.   Continued...

A firefighter raises flares as he protests in front of the parliament in Athens February 28, 2012.  REUTERS/John Kolesidis