TREASURIES-Bonds rise on Fed buying, European debt worries

* Fed buys $10 bln in bonds via two operations

* Contagion worries in Europe adds safety bids for bonds

* Some caution emerges in advance of Friday’s jobs data

(Updates market action, adds quotes, changes byline)

By Richard Leong

NEW YORK, Nov 29 (BestGrowthStock) – U.S. Treasury prices rose on
Monday prompted by Federal Reserve’s bond purchases and safety
bids stemming from anxiety over fiscal problems spreading
across Europe.

Short-covering and month-end portfolio purchases added to
the market’s gains in the absence of major economic data.

Benchmark U.S. government debt fared also better than Bunds
as investors feared more sovereign troubles across the Atlantic
and its rising toll on stronger European nations like Germany
to bail out their neighbors, analysts said.

The European Union’s approval of an 85 billion euro ($115
billion) rescue package for Ireland on Sunday failed to quell
jitters that other debt-stricken countries like Spain and
Portugal may need emergency aid too. See [ID:nLDE6AR0M6]

“The European debt crisis is adding more problems down the
road,” said Andrew Richman, fixed income strategist at SunTrust
Private Wealth Management in Palm Beach, Florida.

Some uncertainties over Friday’s payroll report restrained
the day’s market gains on risks that the government may show
bigger-than-expected job growth in November, signaling an
earlier pickup in growth and inflation down the road.

“The tone of the U.S. economic data has perked up,” said
Nic Pifer, a portfolio manager at Columbia Management in
Minneapolis. “That has worked against a Treasury rally.”

Long-dated Treasuries were the best performing issues,
flattening the yield curve for a third straight session.

The 30-year cash bond (US30YT=RR: ) garnered an afternoon
bout of shortcovering when its price touched chart resistance
in the 101-15/32 area. It finished near 101-18/32 for a yield
of 4.16 percent, down nearly 6 basis points from Friday.

The yield spread between 30-year and 10-year Treasuries
narrowed to 1.32 percentage points, the smallest margin since
early October.

Benchmark 10-year notes (US10YT=RR: ) rose 10/32 to yield
2.83 percent, down from 2.87 percent late Friday. The 10-year
yield flirted with the 3 percent mark two weeks earlier.

The yield spread between 10-year Treasuries and 10-year
Bunds narrowed to 8 basis points from 11 basis points Friday.

FED RETURNS

The U.S. central bank resumed its bond purchases via its
latest quantitative easing program, known as QE2. The $600
billion move is intended to inflate asset prices and stimulate
the overall economy, as the housing market remains in a slump
and unemployment is historically high.

On Monday, the Fed purchased a combined $10 billion in
Treasuries through two separate operations, already matching
last week’s total. It plans to buy about a total of $39 billion
in government securities this week. See [FED/]

The Fed is set to buy $6 billion to $8 billion worth of
Treasuries due Dec 2014 to May 2016 on Tuesday.

The Fed’s bond purchases provided the stability that some
traders had expected. The bond market has stumbled since the
Fed announced its QE2 plan on Nov. 3, as traders cashed in
profitable bets ahead of the QE2 announcement.

Barclays’ Treasury total return index were down 1.08
percent through Friday, steeper than the 0.76 percent fall of
its Aggregate index, a gauge of the entire U.S. bond market.
(Additional reporting by Karen Brettell; Editing by Diane
Craft)

TREASURIES-Bonds rise on Fed buying, European debt worries