TREASURIES-Prices gain as Europe fears stoke safety bid
By Karen Brettell NEW YORK, May 25 (Reuters) - U.S. Treasuries prices gained o n F riday as concerns over a possible Greek exit from the euro zone fueled a bid for the safe-haven debt, with investors preparing for what is likely to be volatile trading over the coming month. Fears about the impact of Greece's upcoming election and spreading stresses on bank and state funding to other countries, including Spain, have helped push benchmark 10-year Treasury yields to near their lowest levels in at least 60 years. Some of these concerns were heightened on Friday after Spain's wealthiest autonomous region, Catalonia, requested help from the central government to refinance its debt. Traders are expecting a volatile month in June. Greece holds elections on June 17 and the U.S. Federal Reserve is expected to indicate whether it is likely to implement further stimulus via so-called "quantitative easing" after its Operation Twist program expires. "The whole next month is important," said Fidelio Tata, head of U.S. interest rate strategy at Societe Generale in New York. Expectations of additional volatility are keeping volumes low as many investors stay on the sidelines, wary of getting caught offside in a large move up or down. "Until market participants have a better feel and better sense of what the next move's going to be, participation remains low," Tata said. Next week traders will also focus on some key U.S. economic data, including an employment report on Friday, for signs that the economy is weakening, which would make the Federal Reserve more likely to announce new bond purchases. "A weak number could get people really concerned," said Suvrat Prakash, an interest rate strategist at BNP Paribas in New York. "If you have the downside risks from Europe and if you have a second weak payroll number in a row, then you've got the perfect conditions for QE3 or an extension of the Twist program," Prakash said. Operation Twist involves buying longer-dated debt and funding the purchases with sales of short-dated notes in a bid to reduce long-term borrowing costs and stimulate the economy. The payroll data is expected to show that employers added 150,000 workers in May. Data on Thursday is expected to show that U.S. gross domestic product grew 2 percent in the first quarter. Benchmark 10-year notes were last up 9/32 in price to yield 1.75 percent, down from 1.78 percent late o n Th ursday. The U.S. bond market will close early at 2 p.m. (1800 GMT) o n F riday ahead of the three-day Memorial Day weekend.
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