TREASURIES-Prices rise slightly as economic data mixed

Posted by Reuters

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* Philly Fed index drop soothes taper fears

* Drop in new jobless claims linked to holiday

* October Producer Price Index down 0.2 percent

By Luciana Lopez

NEW YORK, Nov 21 (Reuters) – Prices for U.S. Treasuries rose slightly on Thursday as investors weighed the likelihood of a pullback in stimulus by the Federal Reserve, even as economic data and Fed speakers sent mixed signals.

While jobless claims suggested the jobs market could be finding firmer ground, factory activity in the U.S. mid-Atlantic region slowed in November.

“The Philly Fed (manufacturing) number offset the decent claims data,” said Kim Rupert, managing director of fixed-income analysis at Action Economics in San Francisco.

The lack of a strong trend in economic data has left investors stymied, she said.

“It’s still very much a range trade until we can find some more definitive news that will give us more direction,” Rupert added.

Investors are trying to gauge when the Fed might pull back on its $85 billion per month in buying of Treasuries and mortgage-backed securities.

After policymakers, including Chairman Ben Bernanke, began hinting at an exit in May, yields on benchmark 10-year notes shot up more than 100 basis points over several months. But backpedaling by policymakers, as well as a slew of mixed data, have since given investors pause.

Even Federal Reserve speakers on Thursday did little to clarify the direction of policy.

St. Louis Federal Reserve President James Bullard, for example, said that accommodative bond-buying must continue for now despite possible inflation risks, in part because there are no signs of price rises so far.

But Richmond Fed President Jeffrey Lacker said price gains were likely to accelerate.

Lacker is not a voting member this year on the Federal Open Market Committee, though he said he remains opposed to the Fed’s current policy of buying $85 billion in bonds every month to try to stimulate the economy.

The benchmark 10-year Treasury note rose 1/32 in price to yield 2.788 percent on Thursday, compared to 2.791 percent late on Wednesday.

The 30-year bond rose 7/32 in price to yield 3.892 percent on Thursday, compared to 3.905 percent late on Wednesday.

Analysts said investors oversold Treasuries in the previous session after meeting minutes added to expectations that the Fed will hold interest rates at record lows for several years.

“The Philly Fed was quite weak but the market was dramatically oversold,” said Thomas di Galoma, co-head of fixed income rates at ED&F Man Capital in New York.

The U.S. Treasury also sold $13 billion of 10-year TIPS, or inflation protected securities, on Thursday at a high yield of 0.560 percent.

“This is the highest yielding 10-year TIPS auction since July 2011,” noted Thomas Simons, a money market economist with Jefferies & Co in New York.