* Mortgage hedging, late stock stumble push prices higher
* Long-dated Treasuries up on view Fed could buy them
* European central banks aggressively cut interest rates
* Weak Nov employment data anticipated; report due Friday
(Adds comment, updates prices)
By Ellen Freilich
NEW YORK, Dec 4 (Reuters) - U.S. Treasuries prices rallied
on Thursday, propelled by hedging as mortgage rates fell and by
the continuing flight to the safety of government debt as
stocks fell further.
The jump in home owners refinancing their mortgages as
rates fall has created a need to buy long-dated Treasuries as a
hedge for mortgage portfolio managers.
The Federal Reserve's plan to buy mortgage securities to
lower home loan rates is likely to also be followed by another
cut in the central bank's benchmark interest rate in
mid-December after what is likely to be another large rise in
unemployment in Friday's monthly U.S. jobs report, analysts
said.
"Convexity buying and a strong need to replace mortgage
paper led the rally," said Andrew Brenner, senior vice
president at MF Global. "There's a need for duration."
A late stock slide that sent major U.S. stock indexes down
two to three percent fed the bid for safe-haven government
debt.
The bid for Treasuries was already active, however,
following big interest-rate cuts by European central banks and
ahead of the U.S. government's monthly employment report which
should show that non-farm payrolls shed 340,000 jobs last
month, a median estimate from economists polled by Reuters.
By the end of the day, Treasuries prices were up across the
maturity curve, but for most of the session, long-dated
Treasuries enjoyed the hottest demand.
Analysts observed that two-year notes were already below
the Federal Reserve's benchmark federal funds rate of 1.0
percent, though that rate is expected to be cut by another
half-percentage point next week and perhaps to zero next year.
In contrast, they said, the Fed had indicated, most
recently in comments by Fed Chairman Ben Bernanke, that the Fed
could purchase "substantial quantities" of longer-term
securities issued by the U.S. Treasury or government-sponsored
agencies in an effort to lower yields and stimulate demand.
"The Fed has limited scope to cut short-term rates, but it
has said that it may begin targeting long-term interest rates
so one has the Fed on one's side when purchasing long-term
maturities right now," said Tony Crescenzi, chief bond market
strategist at Miller, Tabak & Co. in New York.
"Those who would short long-term Treasuries are fighting
against the Fed's balance sheet and no one can win against
that," he said.
Benchmark 10-year Treasury notes traded up 28/32 in price
for a yield of 2.56 percent. Benchmark yields fell as low as
2.54 percent overnight, the lowest in over five decades.
Thirty-year bonds rose nearly two points, their yields
easing to 3.07 percent from 3.16 percent on Wednesday.
The prospect direct purchases of long-dated Treasuries by
the Fed came amid a fresh round of global monetary easing.
The European Central Bank made its biggest ever cut to
interest rates on Thursday, reducing benchmark credit costs by
75 basis points as it forecast a gloomy year ahead for the
recession-bound euro zone economy.
That rate cut, though big by ECB standards, was tame
compared with a 100 basis point cut by the Bank of England, 150
points by the Reserve Bank of New Zealand and 175 basis points
by Sweden's central bank earlier in the day.
A batch of weak U.S. economic data this week, meanwhile,
have supported the outlook for further easing by the Fed, by
conventional and so-called "quantitative" means.
Weekly job loss data showed the number of U.S. workers on
jobless benefits rolls hit a 26-year high.
On Friday the U.S. government is expected to report another
sharp fall in U.S. employment as weakening consumer and
business demand prompted companies to cut jobs to reduce costs,
economists polled by Reuters forecast.
With the U.S. economy mired in recession, which this week
was declared to have begun in December 2007, the unemployment
rate is estimated to have risen to 6.8 percent in November from
6.5 percent in October. That would be the highest jobless rate
in 15 years.
In late trade, five-year Treasury notes were up 14/32 in
price, their yields easing to 1.51 percent from 1.61 percent
late on Wednesday. Two-year Treasury notes climbed 4/32 in
price, their yields easing to 0.825 percent from 0.89 percent
late on Wednesday.
(Reporting by Ellen Freilich)
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