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TREASURIES-Prices for 30-year bonds sink on QE3
September 13, 2012 / 8:06 PM / in 5 years

TREASURIES-Prices for 30-year bonds sink on QE3

* Fed launches third big round of stimulus until jobs
outlook better
    * Treasury sells $13 billion in 30-year bonds
    * U.S. jobless claims rose more than expected due to storm


    By Richard Leong and Luciana Lopez
    NEW YORK, Sept 13 (Reuters) - Prices for 30-year U.S.
government debt sank on Thursday after the Federal Reserve
announced a round of stimulus comprising mortgage-backed
security purchases rather than the Treasury buys many had
expected.
    But prices for shorter-dated debt rose in volatile trading
as investors saw the program, aimed squarely at boosting the
housing market in a bid to improve the economy and lower
stubborn unemployment, keeping rates lower in the shorter term.
    The Fed said it would buy $40 billion of mortgage debt per
month and keep buying assets until the jobs outlook improves
substantially. 
    In an additional move that reflects just how concerned they
are about the economy, Fed officials said they were unlikely to
raise interest rates from current rock-bottom lows until at
least mid-2015, compared with previous guidance of late 2014. 
    The Fed statement initially sent prices for 10- and 30-year
debt sharply down, but the benchmark 10-year Treasury note
 recovered to end the day higher. The 30-year bond
 dropped, but ended off the day's lows.
    "The bottom line is for the long end of the Treasury market
there was disappointment because they're not extending the
buying into the long end. It's a mortgage event," said David
Ader, head of government bond strategy at CRT Capital Group in
Stamford, Connecticut.
    Some analysts said the program was less than the market had
expected from a third round of quantitative easing, or QE3.
    "The Fed has under-delivered here. This not full-blown QE3.
They have a lot of flexibility with this statement," said
Anthony Valeri, a fixed income Strategist at LPL Financial in
San Diego. 
    The U.S. Treasury Department sold $13 billion of 30-year
bonds earlier in the day, in what analysts said was a strong
auction. 
    
 
    
    Fed policymakers are trying to convey "that we're not going
to (be) premature in removing policy accommodation, even after
the economy starts to recover more quickly, even after the
unemployment rate begins to move down more decisively we're not
going to rush to begin to tighten policy," Fed Chairman Ben
Bernanke said on Thursday after the announcement. 
    "We're going to give it some time to make sure the recovery
is well established," he added.
    Thirty-year bonds traded 19/32 lower to yield
2.950 percent, after the yield briefly pierced 3 percent for the
first time in about four months.
    Ten-year debt ended the day 6/32 higher to yield
1.739 percent, despite having fallen after the Fed announcement.
    The latest figures on U.S. jobless claims and producer
prices did not cause much market reaction earlier in the day.
The data largely reinforced the view of low employment growth
and inflation.
    First-time filings for jobless benefits totaled 382,000 last
week, higher than what economists had forecast. The Labor
Department blamed the larger-than-expected weekly increase on
Tropical Storm Isaac. 
    At the same time, the agency said producer prices rose 1.7
percent in August, the biggest monthly increase since June 2009.
But the core rate, which excludes volatile energy and food
prices, grew 0.2 percent, in line with estimates.

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