TREASURIES-Nervous investors chase U.S. bond yields to record lows

Thu May 31, 2012 3:51pm EDT

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* U.S. 10-year yield touches record low at 1.53 pct
    * Europe, poor U.S. data stoke safety bids for bonds
    * U.S. Treasuries set for best month since September
    * Investors also snap up German, Japanese, Swiss debt


    By Richard Leong	
    NEW YORK, May 31 (Reuters) - Fears about Spain's troubled
banks and Greece's possible exit from the euro zone deepening
Europe's debt crisis spurred a global race for safe assets on
Thursday, sending benchmark U.S. bond yields to record lows.	
    Compounding investor anxiety was a batch of disappointing
data on U.S. jobs and manufacturing before Friday's closely
watched government payroll report. These weak figures raised
bets the current tepid U.S. growth could vanish and the
likelihood the Federal Reserve would embark on a third
large-scale bond purchase to avert a recession, analysts and
traders said.	
    Benchmark 10-year Treasuries yields fell as low
as 1.53 percent, the lowest ever on records going back more than
two centuries, according to Reuters data. They last traded at
1.57 percent, down 5 basis points on the day.	
    "These yields show there is a lot of fear out there. There
is a fear of a break-up of the euro," said Andrew Richman, fixed
income strategist at SunTrust Private Wealth Management in Palm
Beach, Florida. "People are pulling out of risk and into cash
and Treasuries."	
 
   	
    Other than U.S. Treasuries, pension funds, insurance
companies and other professional investors scrambled for other
traditional safehaven government bonds like those of Germany,
Japan and Switzerland. They also grabbed Swedish, Finnish and
Danish sovereign debt on the perception these Scandinavian
countries are among the least vulnerable in case the euro zone's
finances deteriorate further. In fact the 10-year yields of
these countries are lower than of the United States.	
    In a sign of how the stampede for safety has skewed the
global debt market, shorter-dated Swiss yields moved into
negative territory, while the German two-year yield 
slid near zero this week. They are below the interest rate on
U.S. one-month bills.	
    "The market is moving on emotions. People are getting
extremely scared," Richman said.	
    Global stocks, corporate bonds and commodities showed some
stabilization late Thursday after they were sold off hard
earlier as investors bailed. 	
    The few winners in this tumbling yield climate are holders
of Treasuries and U.S. homeowners whose could refinance into
lower interest mortgages.	
    The U.S. government debt market is poised to record its best
month since September. Barclays' Treasury total return index was
up 1.52 percent through Wednesday, which would be the biggest
monthly rise in eight months.	
    Long-dated Treasuries fared best among all maturities.
Barclays' return index on Treasury issues whose maturities are
longer than 20 years was up 7.59 percent through Wednesday. This
would be the seventh biggest monthly rise for this index,
according to Barclays.
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