TREASURIES-Bonds rally as stock losses spur safe-haven bid

* Stock losses spur demand for safe-haven U.S. debt

* Fed’s Lockhart says large “QE2” needed to help economy

* Fed’s Evans says more stimulus needed

* Bank of American CDS costs jump on mortgage fears
(Updates comment, market action, changes byline)

By Ellen Freilich

NEW YORK, Oct 19 (BestGrowthStock) – U.S. Treasuries prices rallied
on Tuesday as stock market losses spurred demand for safe-haven
U.S. government debt and several Federal Reserve officials said
easier monetary policy was needed to support the economy.

Major stock indexes fell about two percent, while several
Fed officials said the Fed needed to implement a more
accommodative policy to fulfill its mandate to pursue the
highest level of employment consistent with price stability.

“The stock market was down and that gave Treasuries a bid,”
said John Spinello, chief fixed-income technical strategist at
Jefferies & Co. in New York. “And Fed officials are talking
more and more about adding reserves to the system.”

Having already cut overnight interest rates to zero in
December 2008, the Fed has expanded its balance sheet – buying
$1.7 trillion in government and mortgage-linked bonds – to
bring rates even lower and offer more support for the economy.

Financial markets are convinced the Fed will begin another
round of asset purchases after its Nov. 2-3 policy meeting.
Debate remains over what, and how much, the Fed will buy.

Remarks by several senior Fed officials on Tuesday assured
markets the Fed was ready to undertake another round of
so-called quantitative easing, dubbed “QE2,” to try to avert
deflation, where the expectation of ever lower prices stops
consumers and businesses from buying and stalls the economy,

“Policy-makers are focusing on the price stability side of
the equation,” said Guy LeBas, chief fixed-income strategist
with Janney Montgomery Scott in Philadelphia.

Treasuries also got a lift when stocks underwent a bout of
selling when shares of Bank of America Corp (BAC.N: ) hit a
session low on a Bloomberg report that Pimco, Blackrock and the
Federal Reserve Bank of New York were seeking to force Bank of
America to buy back $47 billion of mortgage bonds. The
bondholders and the New York Fed cited failures by Bank of
America’s (BAC.N: ) Countrywide unit to service loans properly,
the report said. [ID:nWEN1422] The New York Fed and Pimco
declined comment on the report.

News that housing starts rose 0.3 percent in September,
with a 4.4 percent rise in single-family sales outweighing a
9.7 percent drop in multi-family starts, initially put a little
downward pressure on bond prices. The effect wore off as the
trading day progressed.

Traders said China’s first rate hike since 2007 spurred
chatter over its future purchases of Treasuries but did not
impact bond prices.

The benchmark 10-year note (US10YT=RR: ) was up 12/32, its
yield easing to 2.47 percent from 2.52 percent on Monday.

The 30-year Treasury bond (US30YT=RR: ) rose one point, its
yield easing to 3.90 percent from 3.96 percent late Monday.
(Editing by Chizu Nomiyama)

TREASURIES-Bonds rally as stock losses spur safe-haven bid