TREASURIES-US 10-yr yield heads for biggest annual drop since 2008

SINGAPORE Dec 30 (Reuters) - The U.S. 10-year Treasury yield inched up in Asia on Friday but was on track for its biggest annual drop since 2008, underscoring how the euro zone's debt crisis has stoked safe haven demand for U.S. debt.

* U.S. 10-year Treasuries dipped around 3/32 in price to yield 1.911 percent, rising around 1 basis point from late U.S. trade on Thursday and staying within this month's range of 1.798 percent to 2.167 percent.

* Investor jitters over the euro zone's sovereign debt crisis have kept Treasuries on firm footing this month, even as some U.S. indicators suggested that the economy's recovery was picking up steam.

* For the year, the 10-year Treasury yield has fallen roughly 138 basis points, on track for its biggest annual decline since the global financial crisis in 2008, when the 10-year yield slid by around 181 basis points.

The 10-years have returned some 17 percent this year as investors fled riskier assets.

* Ten-year Treasuries may come under pressure in the first half of 2012 due to the potential for the unwinding of safe haven buying, and as U.S. employment conditions and consumption are likely to show some firmness in the January-March quarter, said Makoto Noji, senior bond and currency strategist for SMBC Nikko Securities in Tokyo.

"It seems a bit strange that the (10-year) yield is below 2 percent even though U.S. equities have shown some resilience, and I get the sense that money inflows to Treasuries may have been a bit excessive," Noji said.

"I think the odds are tilted toward a rise in the yield at the outset, in the wake of this temporary bout of excessive buying," he added.

Ten-year Treasuries have stayed firm in December even though the U.S. S&P 500 stock index has managed to rise 1.3 percent so far this month.

Over the course of 2012, however, the 10-year Treasury yield will probably not rise too sharply, since the Federal Reserve is unlikely to raise interest rates very soon, Noji said.

If the U.S. two-year yield stays roughly around 0.25 percent, the 10-year Treasury yield is likely to trade in a range of around 1.85 percent to 2.55 percent in 2012, he said.

The Fed has said that it anticipates that economic conditions are likely to warrant exceptionally low interest rates at least through mid-2013, and market players expect the Fed to keep interest rates near zero at least until then.