US Treasury prices curbed

Longer-dated US Treasuries ended Wednesday's session with losses as stock market gains put the brakes on the longest rally in bonds since the Federal Reserve announced its direct purchase program in March. The market had been on an upswing in recent days as investors questioned whether a moderation in the US economy's contraction would turn into a full-fledged recovery after all.
"The big increase that we saw in prices earlier was a bit overstated, so I'm not surprised to see a retracement," said Mary Ann Hurley, a senior trader at D.A. Davidson & Co in Seattle. The Federal Reserve bought $7 billion of Treasuries on Wednesday with maturities between 7 and 10 years, concentrating on the 7-year sector. That kept Treasury prices higher for much of the trading day, but gains in stocks curbed demand for the safe haven of government bonds later in the day.
In the afternoon, benchmark 10-year notes were trading 4/32 lower and yielding 3.67 percent. The 10-year US Treasury note yield has fallen about 40 basis points from the eight month high around 4.0 pct seen last week. The 30-year bond price sank 9/32 points, yielding 4.49 percent on the end of the day, after rising a full point in the aftermath of the Fed buy-back.
Long bonds offered a total return of 4.1 percent over the preceding four sessions, the best such run since December, according to the Merrill Lynch Fixed Income Index. Long-dated Treasuries were supported by data showing a 0.1 percent increase in consumer prices for May, less than the consensus expectation for 0.3 percent. This low rate was buttressed by Tuesday's producer price index, which was also below forecast.
The news bolstered the view that the Federal Reserve would be able to leave its benchmark federal funds target rate at the current rock-bottom range of zero to 0.25 percent for the foreseeable future. The Fed meets next week to discuss interest rate policy and emergency credit measures.
"Inflation is going to continue to give the Fed a free hand," said Mark Vitner, senior economist at Wachovia. "They can maintain an accommodating monetary policy for a longer period of time now." Indeed, futures markets, which had begun toying with the idea of possible Fed interest rate hikes by year-end, had now backed off that prospect.