Strong bid for U.S. debt as stocks tumble

NEW YORK Tue Jun 29, 2010 4:40pm EDT

NEW YORK (Reuters) - U.S. Treasuries rose on Tuesday, pushing two-year note yields to the lowest on record as stocks tumbled globally on worries over euro-zone debt problems and potential for a U.S. double-dip recession.

The price of the 30-year Treasury bond rose a full point. Benchmark 10-year Treasury note yields fell below 3 percent for the first time in 14 months, and three-month euro Libor, or the price that European banks charge each other for short-term loans, rose to an eight-month high.

The move flattened the Treasury curve, with the spread between yields on two-year notes and 10-year notes narrowing to 235 basis points, the slimmest margin between those rates since October, 2009.

Benchmark 10-year notes were trading 19/32 higher in price to yield 2.96 percent, the lowest since April, 2009 and down from 3.03 percent late on Monday.

"There is general nervousness about how equities are closing out and whether there will be any more of this into quarter-end tomorrow," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.

"The data out of China got us going, with weaker data over there," he added, referring to the sharp downward revision of a measure of China's economic outlook for the month of April.

The Conference Board revised its leading economic index for China to reflect a gain of 0.3 percent in April compared with its initial report of a 1.7 percent gain for that month.

"There is some nervousness about the one-year liquidity facility in Europe coming off soon and then lower confidence data here today," Klingman said.

O'Donnell said the Treasury curve on Monday broke a steepening trend that had been in place for over three years, with longer-dated yields set to fall further.

"Yesterday was Breakout Monday as major resistance levels in Treasuries were finally broken and closed through -- the door is now wide open for a bull flattening move that will take 10-year yields to 2.75 percent, at least," he said.

Two-year Treasury notes were trading 2/32 higher in price to yield 0.61 percent, down from 0.63 percent late on Monday. Yields tumbled to as low as 0.59 percent early in the day, the lowest on record.

Data from The Conference Board showed consumer confidence dipped more than forecast in June, sparking worries about the future for consumer spending.

"It's more of a general perception of the turmoil in the markets," said Jim O'Sullivan, chief economist at MF Global in New York.

Traders said the market had also begun to anticipate a poor nonfarm payrolls number for June. The U.S. Labor Department will release a report on Friday on the number of jobs added or lost during the month of June.

"This market's not going down until payrolls," said Raymond Remy, head of U.S. fixed income at Daiwa Securities in New York. "There's a tremendous amount of concern about Friday's employment report that it's going to be weak."

Treasuries were little impacted by data showing home prices unexpectedly rose in April. Standard & Poor's/Case Shiller said their home price index for April rose 0.4 percent on a seasonally adjusted basis from a downwardly revised 0.2 percent drop in March. Analysts polled by Reuters had forecast a 0.1 percent decline.

Investors are turning to lower-risk U.S. debt as they wait with some trepidation the release on Friday of the government's June non-farm payrolls and unemployment data.

The May employment data released early this month kicked off a string of weaker-than-expected U.S. numbers, including home and retail sales. That reignited worries the world's largest economy may be spiraling back into recession.

U.S. Treasuries had already been tracking higher since early April, on fears a sovereign debt crisis in Europe might spread and throw the globe back into a credit crunch similar to that of 2008. Those fears have not entirely gone away, despite a massive European Union aid package to help out struggling countries like Greece.

"Treasuries are benefiting from all the turmoil," said Thomas di Galoma, head of fixed-income rates trading at Guggenheim Securities in New York.

The 30-year bond hit a bit of milestone, with yields dipping below 4.00 percent to 3.95 percent, the lowest since October, 2009. In the latest trade, bonds were up 1-9/32 in price to yield 3.94 percent, down from 4.01 percent late on Monday.

(Additional reporting by Chris Reese, Burton Frierson and Richard Leong; Editing by Dan Grebler)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.