10-year treasuries jump after Bernanke speaks

Treasury benchmark 10-year notes climbed, rising for a fourth day after Federal Reserve Chairman Ben S. Bernanke indicated the central bank will maintain efforts to keep borrowing costs low.

“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said Wednesday. Benchmark 10-year yields rose to the highest level in almost two years earlier this week on speculation the Fed will scale back the bond-buying program it uses to support the economy. Minutes of the policy makers’ June meeting issued yesterday showed they debated whether to reduce the purchases.

“The market is quite happy,” with Bernanke’s remarks, said Chungkeun Oh, who invests in Treasuries at Industrial Bank of Korea. “His comments should be quite a comfort.”

Ten-year yields declined seven basis points, or 0.07 percentage point, to 2.56 percent, as of 7:10 a.m. in London, Bloomberg Bond Trader data showed. The price of the 1.75 percent note due in May 2023 rose 17/32, or $5.31 per $1,000 face amount, to 93. The yield climbed to 2.75 percent earlier this week, the most since August 2011.

Japan’s 10-year yield slid 3 1/2 basis points to 0.82 percent, set to decline for a third day.

The Bank of Japan maintained its pledge to expand the monetary base by 60 trillion yen ($608 billion) to 70 trillion yen per year, it said after a policy meeting today. The decision was predicted by all 20 economists surveyed by Bloomberg News.

Korea’s 10-year yield was 0.1 won less than the previous day to 3.43 percent. The yield has been falling since Tuesday. The Bank of Korea froze the key rate for the second consecutive month at 2.5 percent. The Korean central bank lowered the key rate from 2.75 percent in May to complement the Korean government’s stimulus effort.

Japanese investors bought a net 973.1 billion yen of bonds outside the nation in the week ended July 5, the most since September, according to the Ministry of Finance.

Hajime Nagata at Diam Co. in Tokyo said he’s sticking to his forecast for the U.S. central bank to start tapering in September. The gain of 195,000 jobs last month, as reported by the Labor Department on July 5, was a positive sign for the economy he said. A Bloomberg News survey of economists had projected 166,000.

“I believe that what Bernanke wants the market to understand is that tapering and a rate hike are different,” said Nagata, who helps manage the equivalent of $118.9 billion at the unit of Dai-Ichi Life Insurance Co. “There will be a meaningful time between the two. The market movement is irrational.”

Bernanke told reporters on June 19 that the Fed may begin to slow its $85 billion in monthly bond purchases this year and end them in 2014 if economic growth meets policy makers’ goals.

Many Fed Reserve officials want to see more signs employment is picking up before they’ll begin slowing the bond purchases, according to minutes of policy makers’ last meeting. Several members judged that a reduction would probably be warranted soon.

Government data will probably show prices for imported goods were unchanged in June from May and weekly initial claims for unemployment insurance declined to 340,000 from 343,000, based on Bloomberg surveys of economists.

The Fed has kept its target for overnight bank lending in a range of zero to 0.25 percent since December 2008. It has said it will consider raising the target when unemployment falls to 6.5 percent, versus 7.6 percent as of June.

Thirty-day federal funds futures contracts for delivery in April 2015 yielded 0.52 percent, indicating investors expect the Fed target to be higher by then. The contract settles at the average overnight fed funds rate for the delivery month.

Thirty-year bonds tumbled 12 percent, 10-year notes dropped 6.5 percent and 2-year debt was little changed, based on the data. Bloomberg