TREASURIES-Yields hit record lows in safe-haven buying
* Benchmark yields touch record low of 1.394 percent * Evidence of US economic slowdown adds to bullish tone * Two-year notes auction brings record low yield By Chris Reese NEW YORK, July 24 (Reuters) - U.S. Treasury debt yields dipped to record lows on Tuesday as fears over the outcome of Europe's debt crisis fueled steady buying of U.S. government debt. Worries that Spain will require a massive financial bailout on top of an already approved rescue deal for its banks pushed the country's debt yields to new highs, while Italy's benchmark stock market dropped to the lowest level since the launch of the euro zone. After Moody's on Monday changed its outlook on Germany's sovereign debt rating to negative, that left investors with even fewer avenues for lower-risk assets. U.S. stocks fell by about 1 percent and Treasuries benefited. "The Treasury market continues its powerful and relentless bid as investors flock to safer investments," said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York. Benchmark 10-year Treasury notes traded 11/32 higher in price to yield 1.403 percent after hitting a record low of 1.394 percent. Benchmark yields were traded at 1.438 percent late Monday. Disappointing economic data reinforced negative sentiment, as investors increased bets that the Federal Reserve will launch new stimulus to try to offset the economic slowdown. The Federal Reserve Bank of Richmond's manufacturing index declined to its lowest level since April 2009, with a large drop in manufacturing shipments and new orders. Data earlier in the day showed U.S. manufacturing this month expanded at the slowest pace since late 2010. "Markets don't really care about good economic data, but they do care about bad economic data because it reinforces the pessimism that you are seeing in the sovereign markets in Europe," said Eric Green, chief economist and head of interest rate strategy at TD Securities in New York. Moody's Investors Service late on Monday changed its outlook for Germany, the Netherlands and Luxembourg to negative from stable as fallout from Europe's debt crisis cast a shadow over the euro zone's top-rated countries. The rating agency cited an increased chance that Greece could leave the euro zone, which "would set off a chain of financial sector shocks ... that policymakers could only contain at a very high cost." It also warned that Germany and other countries rated Aaa might have to increase support for troubled states such as Spain and Italy that are struggling to finance their deficits. Safe-haven demand meant the Treasury on Tuesday sold $35 billion of two-year notes at a record low yield. The Treasury will auction $35 billion in five-year notes on Wednesday and $29 billion in seven-year debt on Thursday. Ahead of the Wednesday's auction, five-year notes on Tuesday traded 2/32 higher in price to yield 0.552 percent from 0.564 percent late Monday. Five-year yields hit a record low on Tuesday of 0.541 percent.
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