16:37, Monday 24 October 2011

* Doubts over EU debt crisis plan curb market losses

* Fed to buy Treasuries due in Feb. 2036 to Aug. 2014

* Traders prepare for $99 billion in coupon-bearing supply

* Latest mortgage plan seen little help for housing market
(Updates market action, adds quotes)

NEW YORK (Frankfurt: A0DKRK – news) , Oct (KOSDAQ: 039200.KQ – news) 24 (Reuters) – U.S. Treasuries prices were
mostly lower on Monday as a rally in Wall Street stocks pared
safety bids for bonds despite doubts on whether European
leaders would reach a comprehensive plan to contain the
region’s debt crisis.

Eurozone leaders made some progress toward a strategy to
stem the region’s debt crisis on Sunday, nearing agreement on
bank recapitalization and on how to leverage the European
Financial Stability Facility — a 440 billion euro bailout
fund. But final decisions were deferred until a second summit
in Brussels on Wednesday, and sharp differences remain over the
size of losses private holders of Greek government bonds will
have to accept. For more, see [ID:nL5E7LM0VD]

“All eyes are looking at Wednesday’s possible answers. We
are still not sure how the EFSF would work. This leaves a wide
range of options open,” said Guy LeBas, chief fixed income
strategist at Janney Montgomery Scott in Philadelphia.

Even if EU policymakers deliver a credible strategy to
prevent bad sovereign debt of weaker euro zone nations from
hurting banks, it would not be enough to foster the region’s
economic growth, which has shown signs of rapidly slowing. This
would mean bond yields could linger at their current
rock-bottom levels in the foreseeable future, investors said.

“You can pump as much liquidity into the banking system,
but you are going to stun growth,” said James Camp, managing
director of fixed income at Eagle Asset Management in St.
Petersburg, Florida, which manages $17 billion.

Until the EU unveils its crisis measures, investors turned
their focus on upbeat results from Caterpillar (NYSE: CAT – news) and proposed
acquisitions, which boosted the appetite for stocks. See [.N]

U.S. blue-chip stocks rose in late morning trading with the
Standard & Poor’s 500 index up more than 1 percent.[.N]

On lighter-than-average trading, benchmark 10-year Treasury
notes fell 2/32 in price for a yield of 2.22
percent, up 0.7 basis point from late on Friday, while two-year
notes were down 1/32, yielding 0.29 percent, up
almost 2 basis points from Friday.

Euro zone debt crisis: http://r.reuters.com/hyb65p
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LONG BONDS RISE

The 30-year bond bucked the market, snapping a
four-day losing streak. It rose 10/32 to yield 3.25 percent,
down 2 basis points, as traders looked to profit from the
Federal Reserve’s purchase of long-dated securities on Monday.

The U.S. central bank bought $2.50 billion of Treasuries
due Feb. 2036 to Aug. 2014, part of its $400 billion “Operation
Twist” program aimed to stimulate lending activity. For more,
see [ID:nTAR001214]

Shorter-maturity issues succumbed to some selling pressure
as investors and dealers prepared for this week’s Treasury debt
auctions, analysts said. The Treasury will sell a combined $99
billion in two-year, five-year and seven-year debt later this
week.

“It’s pretty manageable supply, but it won’t be
aggressively bid,” LeBas said.

Separately, investors tried to gauge the likely impact from
a plan from the Federal Housing Finance Agency, the regulator
of mortgage finance giants Fannie Mae (Dusseldorf: 929694.DU – news) and Freddie Mac (Dusseldorf: FHL.DU – news) , to help the housing market. For more, see
[ID:nN1E79N0HP]

The FHFA said on Monday it was easing the terms of the
two-year-old Home Affordable Refinance Program, which helps
borrowers who have been making mortgage payments on time but
have not been able to refinance as home values have dropped.

Most analysts and investors said the changes would benefit
some struggling borrowers but not enough to jump-start the
struggling market.

“It might be politically desirable, but it’s not wide
enough to mitigate the bottom from falling out of the market,”
Eagle (SES: E2:E04.SI – news) ‘s Camp said.
(Reporting by Richard Leong; Editing by Dan Grebler)