TREASURIES-Bonds up as caution spurs safety bid
* Caution ahead of expected Spanish bank bailout request * Concern China data due Saturday could be weak * German import/export drop raises euro zone contagion fear By Ellen Freilich NEW YORK, June 8 (Reuters) - U.S. Treasuries prices extended the previous session's gains on Friday as worries about the slower global economy growth and Europe's debt crisis fed a bid for safe-haven U.S. government debt. Spain, which sold debt on Thursday in a sale that went mainly to the country's banks, is expected to request European aid for its ailing banks over the weekend, an event that would make it the fourth and largest nation to seek assistance since the euro zone debt crisis began. Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management LLC in Menomonee Falls, Wisconsin, said, "On the margin, a Spanish bank recapitalization would begin to snuff out some of the flames in Europe." Once that happens, "U.S. Treasury yields should rise as problems abate in Europe," he said. U.S. bond market gains Thursday and Friday followed a three-day retreat earlier in the week. "Financial markets are bipolar," said Ward McCarthy, chief financial economist and managing director, fixed income division at Jefferies & Co. in New York. "Periodic fits of irrational exuberance are followed by the acknowledgement of reality. That is why it was risk on earlier this week and risk off today."Benchmark 10-year notes were up 18/32 at 100-18/32, holding overnight gains, their yields easing to 1.58 from 1.64 percent at Thursday's New York close. The 10-year yield has risen from a historic low of 1.442 percent a week ago. Heightening concern about the global growth outlook, including U.S. growth, Germany imports tumbled at their fastest rate in two years in April, and exports fell more than expected, a sign that even Europe's most robust economy is being affected by the euro zone debt crisis. An early stock slide on Wall Street and expectations of weak Chinese economic data also fed the bid for safe-haven U.S. Treasuries. Major U.S. stock indexes fell 0.4 percent. Traders said China's decision to cut rates by 25 basis points on Thursday might be a sign inflation and industrial output data due on Saturday would fall short of expectations. "This market is in full fear mode heading into the weekend on expectations that Chinese economic numbers could come in weaker," a trader said. Prices on the 30-year government bond rose 11/32 to 106-20/32, their yields falling to 2.68 percent from 2.74 percent on Thursday and up from a record low of 2.51 percent last Friday. Aside from the immediate concerns of Chinese economic data and developments on the Spanish banking crisis, investors are focused on the outcome of the Greek elections on June 17 that may determine whether Greece remains in the euro zone. This will be followed by the meeting of the monetary policy-making committee of the U.S. Federal Reserve meets on June 19-20 with the question still open as to whether Fed officials will take more steps to ease monetary conditions. On Thursday Fed Chairman Ben Bernanke said the U.S. central bank was ready to shield the economy if financial troubles intensified, telling a congressional committee the Fed was closely monitoring "significant risks" to the U.S. economy from Europe's debt and banking crisis. SUPPLY AHEAD Treasuries prices rose even in the face of upcoming supply. The Treasury Department will sell $32 billion in new three-year notes and reopen a prior 10-year note issue by $21 billion and an older 30-year bond issue by $13 billion next week.
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