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BOND REPORT : Treasurys Edge Up Ahead Of Bernanke Testimony

02/22/2013 | 02:48pm US/Eastern
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By Saumya Vaishampayan, MarketWatch

NEW YORK (MarketWatch) -- Treasurys edged higher on Friday ahead of Federal Reserve Chairman Ben Bernanke's scheduled testimony to the Senate Banking Committee next week.

Yields on the benchmark 10-year U.S. Treasury note (10_YEAR) fell one basis point to 1.97%.

Yields move inversely to prices and one basis point is one one-hundredth of a percentage point.

Bernanke's remarks are important in light of the disagreement among Fed officials about the costs of quantitative easing, suggested by the release of the Federal Open Market Committee's meeting minutes on Wednesday, said Michael Cloherty, head of U.S. rates strategy at RBC Capital Markets.

The FOMC minutes showed that many Fed officials were worried about the risks linked to buying more bonds. The Fed's monthly bond-buying program includes $45 billion of Treasurys and $40 billion in mortgage debt.

While trading isn't yet over, Friday marks the 19th consecutive session in which 10-year yields have traded within 5.5 basis points of 2%. Ten-year Treasury yields have remained in a tight range around 2% in February.

On Friday, yields on the 30-year Treasury bond (30_YEAR) fell one basis point to 3.16% and yields on the five-year note (5_YEAR) fell one basis point to 0.831%.

"We've been trading well in the New York session led by Europe," said Jason Rogan, managing director of U.S. Treasurys at Guggenheim Securities.

The European Central Bank said on Friday that commercial banks would repay less than expected of the cheap loans borrowed from the central bank a year ago.

February's reading of the German Ifo Business Climate index, which showed a rise to 107.4 compared with the expected 104.7, helped push Treasurys to overnight lows, Rogan said.

Treasurys subsequently bounced back as the European Central Bank said commercial banks would pay back just 61 billion euros ($80.71 billion) of the second long-term refinancing operation. This signals a concern among commercial banks, which could be expecting the euro-zone economy to contract again, he said. "That's weighing on the markets," Rogan said.

The Italian general election on Feb. 24 and Feb. 25 could trigger a flight to U.S. Treasurys, considered safe-haven assets, if former Prime Minister Silvio Berlusconi wins. Berlusconi has talked about cutting Italian taxes, which would change the deficit outlook for the euro zone. Gains in Italian polls this month by Berlusconi pushed Treasurys higher as investors worried about political uncertainty. Yields on the 10-year Italian bond fell five basis points to 4.4% Friday.

U.S. stocks rose on Friday on the German data and upside earnings surprises from companies such as Hewlett-Packard Co.

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