TREASURIES-Prices gain as Europe fears stoke safety bid

Fri May 25, 2012 11:00am EDT

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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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