* In Fed minutes, future bond purchases under scrutiny
* Worries persist about deep U.S. spending cuts, Italian
election
* U.S. to sell $9 billion 30-year TIPS Thursday
By Richard Leong
NEW YORK, Feb 20 (Reuters) - U.S. Treasury debt prices rose
on Wednesday, even after records of the Federal Reserve's
January meeting showed policymakers discussed the slowing or
stopping of Fed bond purchases that are aimed at reducing
unemployment.
The bond market weakened briefly on the latest minutes from
the Federal Open Market Committee, the U.S. central bank's
policy-setting group, but rebounded as a fall in stock prices on
the news rekindled some safe-haven bids for bonds.
"Generally, these are more hawkish than the market had
expected and show a waning commitment to the QE program," said
David Keeble, global head of interest rate strategy in Credit
Agricole Corporate & Investment Bank in New York.
The U.S. central bank's third round of bond buying, dubbed
QE3, has propped up the prices of Treasuries, mortgage-backed
securities and other fixed income products.
Fears that the Fed might end QE3 before the end of 2013,
initially ignited by the minutes of the Fed's December policy
meeting released in early January, have partly kept benchmark
yields near 2 percent.
The minutes released on Wednesday of the Fed's Jan. 29-30
meeting intensified those fears with more talk of what could
lead to a shift in the bond-buying program.
"A number of participants stated that an ongoing evaluation
of the efficacy, costs and risks of asset purchases might well
lead the committee to taper or end its purchases before it
judged that a substantial improvement in the outlook for the
labor market had occurred," the minutes said.
But persistent worries about possible steep federal spending
cuts and an uncertain election outcome in Italy have fed safety
bids and curbed large-scale selling in Treasuries, analysts and
traders said.
Moreover, some investors believed 10-year Treasury notes
were appealing whenever their yield approached 2.05 percent,
analysts said.
Treasuries began the day lower in price but turned around as
stock losses deepened.
Benchmark 10-year Treasury notes were trading
5/32 higher in price to yield 2.010 percent, down 1.8 basis
points from late Tuesday, while 30-year bonds were
6/32 higher to yield 3.199 percent, down from 3.209 percent late
on Tuesday.
Wall Street stocks added to earlier losses after the Fed
minutes sparked fears of less stimulus from the central bank.
The Standard & Poor's 500 index, which started the day
near a five-year peak, closed down more than 1 percent lower.
The Treasuries market showed little impact from data showing
groundbreaking on new U.S. homes fell in January, although new
permits for construction rose to a 4-1/2-year high. The
government also said U.S. producer prices rose in January for
the first time in four months.
Traders will receive a heavy calendar of data on Thursday
including the consumer price index, weekly jobless claims and
existing home sales.
They will also prepare to buy $9 billion worth of 30-year
Treasury Inflation Protected Securities.
QE INFINITY, MAYBE NOT
The bond market showed resilience from its initial sell-off
on the Fed minutes, but some investors acknowledged yields will
ultimately rise once the Fed begins its exit strategy from
quantitative easing.
At the end of last year, some traders and analysts spoke of
the possibility the Fed would buy bonds indefinitely, a move
dubbed QE Infinity, to support the U.S. economy.
The last two sets of FOMC minutes signaled policy-makers
have started to look at steps to bring an end to the current era
of unprecedented monetary stimulus that lifted the economy out
of recession and financial crisis.
"They are beginning to take account for the costs and
consequence of their action. That's why the market has turned
around," said Richard Schlanger, portfolio manager at Pioneer (Other OTC: PNCOY - news)
Investments in Boston.
Still, there are many hurdles the economy must clear before
the Fed would end its bond-purchase program, currently at $85
billion a month, Schlanger said, adding that benchmark yields
will likely trade around current levels.
The main hurdle remained the jobless rate, which stood at a
relatively high 7.9 percent in January. Economists forecast it
would take many more months to get unemployment below 6.5
percent, which the Fed has cited as a threshold before it would
consider removing policy accommodation.
