Treasury debt prices gain

US Treasury debt prices rose on Thursday after the Treasury saw solid demand for new inflation-linked bonds, though benchmark yields held above 2 percent as traders worried about how high yields might rise whenever the US Federal Reserve decides to taper its bond purchases.
The bond market was on another rollercoaster ride on heavy volume, a day after remarks by Federal Reserve Chairman Ben Bernanke about the US central bank's bond purchase program prompted a massive selloff in Treasuries. Bernanke told a congressional panel that a decision on whether to scale back the Fed's current monthly pace of $85 billion in purchases of Treasuries and mortgage-backed securities could come at one of the Fed's "next few meetings" if data shows the economy is gathering steam.
"It was a trial balloon from Bernanke. The market reacted poorly," said Thomas Roth, executive director of US government bond trading at Mitsubishi UFJ Securities USA in New York. Benchmark 10-year notes at times struggled to recover after suffering their biggest one-day yield jump since September. Prices rallied after the TIPS action, with 10-year notes last trading up 6/32 in price, with yields holding above the key 2 percent level, at 2.03 percent.
The 30-year bond rose 16/32 in price for a yield of 3.20 percent. The Treasury saw solid demand for its $13 billion reopening of 10-year Treasury Inflation-Protected Securities (TIPS), despite the volatility. So-called indirect bidders, which typically includes fund managers and other end users, bought 56.8 percent of the bonds, the highest level since November 2010, while dealers took only 30.90 percent, the lowest on record for the auction.
The new notes yielded around 2 basis points more than where they traded before the sale, at minus 22.5 basis points. Volumes stayed high on Thursday, after Wednesday's trading session saw the heaviest volume in over five years, with over $600 billion in bonds changing hands in US trading.
In the futures market, 2.3 million contracts of the June 10-year T-note futures changed hands in trading through 3 pm EDT on Thursday. On Wednesday, 2.9 million on this bond contract traded, which was the most in a single day for a front-month 10-year T-note contract since early 2008. The Fed bought $3.65 billion in notes due 2019 and 2020 on Thursday as part of its ongoing purchases.