TREASURIES-Bond prices rally on weak consumer data
* Data supports view of low growth, low inflation
* 30-year yield falls to lowest in over three weeks
* Buying in older issues seen before Fed's first purchase (Adds analysts' quotes updates prices)
By Chris Reese
NEW YORK, Aug 13 (Reuters) - U.S. Treasuries prices rose on Friday, led by the 30-year bond, as weaker-than-expected data on consumer inflation and spending rekindled this week's rally in advance of the Federal Reserve's bond purchase program.
Appetite for longer-dated bonds returned following a drop-off on Thursday. Investors scrambled for investments that offer higher returns than cash and short-dated debt as well as more safety than stocks and other risky assets.
"Accounts are looking to extend duration because they think rates will stay low here," said Suvrat Prakash, an interest rate strategist at BNP Paribas in New York.
Adding to the strength in 30-year bonds were more "flattener" trades that involved buying the long bond and selling 10-year notes and other shorter maturities, analysts said.
These flatteners helped narrow the spread between 10- and 30-year yields to 118 basis points on Friday -- a level not seen in a week. The spread had reached a record wide of 128 basis points two days earlier.
The yield on 30-year Treasuries US30YT=RR fell to 3.87 percent, the lowest level in over three weeks and down from 3.94 percent late Thursday.
The long bond was on track for its best single-week performance in 12 weeks in the aftermath of Thursday's $16 billion auction of 30-year supply, which was part of this week's $74 billion quarterly refunding.
"This week was a royal house of pain for those holding cash," said George Goncalves, head of U.S. interest rate strategy at Nomura Securities International in New York. "You don't want to fight the Fed."
The benchmark 10-year Treasury note US10YT=RR traded 17/32 higher in price to yield 2.70 percent, down from 2.75 percent late on Thursday but still above a 16-month low of 2.68 percent set on Wednesday.
The benchmark note was on track for its biggest weekly fall in yield in 12 weeks.
Friday's data on consumer prices and spending showed the biggest component of the U.S. economy remains sluggish.
U.S. retail sales rose 0.4 percent in July, while the consumer price index rose 0.3 percent, the government reported. For details see [ID:nN13180040]
Analysts polled by Reuters expected retail sales to grow by 0.5 percent last month and the CPI to rise by 0.2 percent.
"The data today showed (the third quarter) is not off to a great start," said James Caron, head of global rates research at Morgan Stanley in New York. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on U.S. CPI, click on: here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
There was a pick-up in buying of older Treasury issues, as traders looked to profit from the U.S. central bank reentry into the bond market, analysts said.
The Fed is scheduled to buy $18 billion of government debt starting next week to mid-September. The first purchase operation on Tuesday will target issues maturing from August 2014 to July 2016. [ID:nN11265556]
The Fed said earlier this week it will use money from maturing mortgage securities to buy government bonds in an attempt to lower long-term interest rates to stimulate lending and investments. Loan demand and capital investments have been stuck at anemic levels, bogging down the recovery.
Bonds pared gains briefly on Friday after a report from Thomson Reuters and the University of Michigan showed a modest recovery in consumer sentiment so far in August following a sharp deterioration in July.
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