U.S. 30-year bonds gain as dealers reduce offers and Fed buys

Aug. 13 (Bloomberg) --Treasury 30-year bonds rose as the Federal Reserve’s primary dealers offered fewer than average of the securities for sale as the central bank bought $1.83 billion of longer-maturity debt.

Primary dealers submitted offers equaling $2.43 for each $1 of the securities bought by the Fed, compared with an average of $2.67 in offers since June and $2.81 this year. Dealers have been choosing to hoard their U.S. bonds as speculation grows that a slowing economy and global financial turmoil will only make them more dear. Treasuries briefly erased gains after Italy was able to sell all the debt it planned at an auction of bills, easing concern the European debt crisis is worsening.

“The continued pressure of buying from the Fed is what keeps people buying on these kinds of pops,” said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, one of 21 primary dealers that trade with the central bank.

The 30-year Treasury bond yield fell two basis points, or 0.02 percentage point to 2.74 percent at 2:52 p.m. New York time, according to Bloomberg Bond Trader data. The 2.75 percent security due August 2042 rose 10/32 or $3.13 per $1,000 face value to 100 9/32.

The gap between yields on U.S. government debt maturing in two and 30 years was 2.47 percentage points, close to the widest since May 29 when it was 2.56 percentage points. The spread has widened from 2.24 percentage points, the narrowest since January 2009.

Chart Pattern

A “shooting star” formation on a candlestick chart suggests Treasury 30-year bonds will continue to rally even after a three-week slide, according to CRT Capital Group LLC.

“The pattern are a solid rejection of the bearish sentiment,” David Ader, head of U.S. government-bond strategy at CRT in Stamford, Connecticut, said in a telephone interview. “We made a new high in yield, and subsequent to that we failed to breach that new high, closing lower, which represents a rejection of how far we rose in yield.”

The U.S. central bank has held interest rates near zero since 2008 and plans to keep them there through 2014 to stimulate the world’s biggest economy. The Fed has also bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing, or QE.

The bond purchases today are part of the central bank’s effort to support the economy by swapping shorter-term Treasuries in its holdings for longer-maturity ones to cap long- term borrowing costs.

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