TREASURIES-U.S. debt rallies on QE3 speculation, euro worries

LONDON, July 9 (Reuters) - Rising demand for U.S. Treasuries
pushed 10-year yields to a one-month low on Monday, driven by
renewed stress in the euro zone and as weak data continued to
raise the likelihood of fresh assets purchases by the Federal
Reserve.

* Increased appetite saw U.S. 10-year bond yields fall 3
basis points to 1.52 percent, sinking below levels hit on Friday
when weaker-than-forecast U.S. payrolls data added to a gloomy
economic outlook and fuelled a steep decline in Treasury yields.

* "There seems to be some follow-through from Friday's
payrolls. This morning there was definitely some good buying
coming into the market at the long end ... mostly driven by real
money," a trader said.

* A slowing economy coupled with growing doubts about
attempts to resolve the euro zone debt crisis has seen investors
turn to the relative safety of U.S. debt, taking yields
closer to the 1.442 percent low hit on June 1. That
was the lowest level on records going back to the early 1800s,
according to data gathered by Reuters.

* Treasury futures rose 8/32 to 134-39/64, matching a
rise in German debt futures. Tension in the euro zone remains
high as Spanish bond yields sit at levels seen as unsustainable
with investors fast losing faith in steps to address the
currency bloc's debt crisis.

* This helped ensure the near-term outlook remained bullish
for Treasuries, analysts said, while also pointing to fresh
dovish comments from U.S. policymakers that added weight to
calls for fresh bond buying in the form of quantitative easing.

* Chicago Federal Reserve Bank President Charles Evans, one
of the Fed's most dovish policymakers, said the bank should
loosen policy further with a new round of bond purchases as a
way to bring down unemployment, even at the risk of driving
inflation temporarily higher.

* "The main story with the Federal Reserve now is when are
they going to go with QE3 and in what shape. Any sign of
(economic) weakness will help the long-end outperform," said
Alessandro Mercuri, strategist at Lloyds Bank in London.

* "We would expect the softening outlook to push the 10-year
yield towards 1.45 percent. Also the event risk is still clear
and present both in Europe ... and in the U.S.," Mercuri added.