* Fed expected to finish QE2, then hang on to its bonds
* FOMC meets mid-week; Bernanke to hold news conference
* Fed bought $7.4 bln maturing 10/2016 to 3/2018
* Auctions of 2-, 5-, 7-year notes set for this week
(Adds Fed purchase, updates prices)
By Ellen Freilich
NEW YORK, April 25 (Reuters) – US government debt prices
rose on Monday, helped by the view that even as Federal Reserve
approaches the end of its second phase of bond buying, it will
hold on to its portfolio — and thus its current level of
monetary accommodation — for some time.
The Fed is still in the second phase of quantitative
easing, known as QE2, a $600 billion bond purchase program
intended to help spur economic growth.
Bonds reached session highs after the Fed bought $7.24
billion in Treasuries maturing October 2016 to March 2018.
Stock market losses also made bonds look more appealing.
Markets expect the Fed to complete its QE2 purchases by
mid-year, and many analysts say the Fed will hold the size of
its balance sheet steady by reinvesting maturing assets after
June to avoid a passive tightening — an issue likely to be
discussed at its April 26-27 meeting. [ID:nN1941922]
Fed policy makers who favor accommodation seem to be in
the lead, which leads us to expect no substantial shift in the
(policy) statement, from the central banks two-day meeting
this week, said David Ader, senior government bond strategist
at CRT Capital Group in Stamford, Connecticut.
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Fed balance sheet: link.reuters.com/buf92k
Fed QE timelines: r.reuters.com/faq98r
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The Fed policy meeting ends on Wednesday with a news
conference with Fed Chairman Ben Bernanke.
Benchmark 10-year notes US10YT=RR rose 11/32 in price,
their yields easing to 3.37 percent from 3.41 percent on
Thursday. The market was closed on Friday for a holiday.
(Theres a) fundamental bias that the data is indeed
slowing and higher gas prices will take their toll on the
consumer, Ader said.
Data on Monday showed new US single-family home sales
increased more than expected in March, but there was little
immediate reaction in bond prices.
Other economic reports likely to evoke somewhat muted
market reaction this week include consumer confidence, durable
goods and the Chicago purchasing managers index.
The Treasurys three note auctions, further refinements of
monetary policy expectations, and a first report on US
first-quarter gross domestic product growth, however, could add
some volatility to the weeks trading.
Supply from Treasury note auctions totaling $99 billion –
$35 billion in two-year notes on Tuesday, $35 billion in
five-year notes on Wednesday, and $29 billion in seven-year
notes on Thursday — will be partially offset by $52.6 billion
in maturing debt, leaving $46.4 billion of net cash needs, Ader
said. Four Fed buybacks, month-end demand, and a persistent
short-base should also support prices, he said.
Bond prices even seem to reflect some of the longer-term
fiscal challenges the United States faces.
The market reaction to the Samp;P outlook revision suggested
that investors had already gone a good way toward pricing in
the fiscal difficulties in the United States, said Robert
Tipp, chief investment strategist for Prudential Fixed Income,
the latter with $240 billion in assets under management.
In that context, a move that pushes 10-year yields through
the recent 3.34 percent low toward the 3.25 percent
range-bottom is achievable, Ader said.
Still, analysts said the technical landscape was broadly
constructive with momentum favoring lower yields, albeit
nearing overbought levels.
The 10-year chart shows volume built near the 3.40 percent
level, which is also near the 3.41 percent 30-day moving
average and a focal point, Ader said.
(Editing by Padraic Cassidy)
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Tags: Monetary
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