Treasuries gain as Fed seen announcing QE3

Treasuries rose, snapping a two-day decline, as economists said the Federal Reserve will announce today a third round of bond purchases known as quantitative easing to spur economic growth.

Benchmark 10-year yields dropped from almost the highest level in three weeks before the Federal Open Market Committee also releases policy makers’ forecasts for unemployment, inflation and the expected path of the federal-funds interest rate over the next several years. Thirty-year bonds advanced before the Treasury sells $13 billion of the securities today. Initial jobless claims rose more than forecast, data showed.

“Front and center is the FOMC,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 21 primary dealers that trade with the Fed. “The market is expecting something, and it runs the gamut from longer guidance to a QE3 program. I would view this as one of the most important FOMC announcements in the last two years.”

The 10-year yield fell four basis points, or 0.04 percentage point, to 1.72 percent at 10:18 a.m. New York time, according to Bloomberg Bond Trader prices. The price of the 1.625 percent note due in August 2022 rose 10/32, or $3.13 per $1,000 face amount, to 99 3/32. The yield climbed to 1.77 percent yesterday, the highest since Aug. 22.

The 30-year bond yield decreased three basis points to 2.89 percent.

The U.S. central bank will announce additional bond purchases, according to almost two-thirds of economists in a Bloomberg survey, while also extending into 2015 its pledge to keep interest rates at virtually zero.

Fed Statement

The Federal Open Market Committee plans to release a statement at about 12:30 p.m. in Washington after a two-day meeting. At 2 p.m. the Fed will release policy makers’ forecasts. Chairman Ben S. Bernanke plans to hold a press conference at about 2:15 p.m.

Global economic growth is poised to decelerate to 2.27 percent this year from 2.87 percent in 2011, based on a Bloomberg News survey.

Initial claims for jobless benefits in the U.S. rose to 382,000 in the week ended Sept. 8, from a revised 367,000 the previous week, the Labor Department reported. The median forecast of 50 economists in a Bloomberg News survey was for a rise to 370,000.

The 30-year bonds scheduled for sale today yielded 2.90 percent in pre-auction trading, compared with 2.825 percent at the previous sale on Aug. 9. Investors bid for 2.41 times the amount of debt offered last month, versus 2.70 in July.

The U.S. auctioned $21 billion of 10-year notes yesterday and $32 billion of three-year debt the day before.

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