TREASURIES-Prices climb before next week’s Fed announcement

* Focus on Fed QE announcement next week

* Month-end buying on index extensions expected

* Q3 inventory jump may lead to further weakness

* Low core PCE underscores need for reflation
(Updates prices)

By Chris Reese

NEW YORK, Oct 29 (BestGrowthStock) – U.S. Treasuries prices rose on
Friday, spurred by month-end buying ahead of next week’s
Federal Reserve meeting, at which the U.S. central bank is
expected to announce large-scale purchases of assets.

The 30-year bond outperformed shorter maturities, reversing
a sliver of its month-long underperformance.

News that third-quarter U.S. gross domestic product grew
2.0 percent while core inflation was under 1 percent supported
expectations the Fed would try to support the economy by buying
assets, which was bullish for Treasuries.

“We’re going to be in a prolonged period of relatively low
interest rates,” said James Sarni, managing principal and
senior portfolio manager at Los Angeles-based Payden & Rygel,
with $55 billion in assets under management.

Treasuries are “coming back from the selling earlier in the
week,” said Chris Molumphy, chief investment officer,
fixed-income, at San Mateo, California-based Franklin
Templeton, with $280 billion in fixed-income assets under
management.

Month-end buying by fund managers trying to lengthen the
average maturity of their portfolios to match benchmark indexes
also supported bond prices, said Jerry Webman, chief economist
at OppenheimerFunds in New York, with $168 billion in assets
under management.

The bond market is awaiting more clarity on the size and
composition of asset purchases expected to be announced at the
end of next week’s Fed policy meeting.

One possibility is that the Fed would announce $500 billion
in purchases over several months, with hints of more. This
scenario has probably been priced into the market.

Another is for a more aggressive program, amounting to
purchases worth $750 billion to $1 trillion, also with hints of
more, if needed.

A recent Reuters poll found that most leading economists
expect the Fed to buy between $80 billion and $100 billion in
assets per month, with totals ranging widely, from $250 billion
to as high as $2 trillion. For more, see: [ID:nNLLRLE6LL]

“The market is grappling with the large-scale asset
purchase program coming from the Fed, how big it will be and
what impact it will have on the curve,” said Robert Tipp, chief
investment strategist at Prudential Fixed Income in Newark, New
Jersey, with $240 billion in assets under management.

“Up until very recently, the prospect of more quantitative
easing had boosted the inflation premium in the back end of the
curve, but in recent weeks some interest has emerged in the
back end of the curve, capping that steepening move,” he said.

The 30-year bond (US30YT=RR: ) traded 31/32 higher in price,
its yield easing to 3.99 percent from 4.05 percent late on
Thursday. Despite Friday’s rise however, the bond was on track
for its worst monthly performance so far this year.

The benchmark 10-year note (US10YT=RR: ) traded 15/32 higher
to yield 2.61 percent, down from 2.66 percent.
(Additional reporting by Ellen Freilich; Editing by Dan
Grebler)

TREASURIES-Prices climb before next week’s Fed announcement