TREASURIES-Prices gain as higher yields lure buyers
* UK economic data aid safe-haven German Bunds, U.S. Treasuries * U.S. yields ease as 11-month highs draw buyers * Treasury three-year note auction firm demand By Ellen Freilich NEW YORK, March 12 (Reuters) - U.S. Treasury debt prices rose on Tuesday as a recent spike in yields lured investors and as U.S. government debt tracked other safe-haven markets higher. Bond prices rose along with those of German Bunds and British gilts, which benefited from data showing a surprise fall in British industrial output in January. "The data out of Europe was weaker than expected and assets typically associated with investors taking on more risk pulled back. That gave Treasuries a nice bid," said Quincy Krosby, market strategist at Prudential Financial with more than $1 trillion in assets under management. The recent rise in yields to levels not seen in 11 months also drew buyers. "For many of Treasuries' natural buyers - people hedging portfolios or needing higher yields to match their assets with their liabilities - these yields are attractive," she said. Leading bond fund manager Jeffrey Gundlach of DoubleLine Capital said last week he had been buying benchmark 10-year U.S. Treasury notes after yields rose above 2 percent. Owning 10-year Treasuries at yields above 2 percent provided an offset to credit risk DoubleLine Capital was taking elsewhere in its portfolio, he said. DoubleLine Capital manages $56 billion in assets. Ten-year Treasury yields rose to their highest levels since April at 2.09 percent after better-than-expected U.S. jobs data for February was released on Friday. After that sell-off, the Treasury market was overdue for a bit of a bounceback, said Michael Lorizio, senior fixed-income trader at Boston-based John Hancock Asset Management. "There was decent support for the 10-year Treasury in the 2.05 percent to 2.06 percent yield area," he noted. Some popular measures of portfolio duration also showed short positions were at somewhat elevated levels, Lorizio said. "A 2.06 percent 10-year yield was an attractive spot to cover for some who were short coming into today," he said. The Treasury's $32 billion sale of three-year notes was well received and easily absorbed, its characteristics similar to the three-year auction held last month, analysts said. After the auction, the market was quiet, traders said. The Treasury will sell $21 billion in 10-year notes (a re-opening of a previously sold issue) on Wednesday. "After the big moves in the market, we expect supply to be a good opportunity for consolidation and for investors to re-enter the market," said George Goncalves, head of U.S. rates strategy at Nomura Securities in New York. The Fed is still buying $85 billion per month of mortgage-backed securities and Treasuries and holding interest rates near zero, he noted. "The Fed is still committed to easing and (the stronger-than-forecast U.S. job growth in February) did not change their stance. Thus, the recent uptick in yield due to the sell-off could provide good buying opportunities," he said. Benchmark 10-year Treasury notes rose 12/32 in price to yield 2.02 percent, down from 2.06 percent late Monday, while 30-year bonds rose 25/32 in price to yield 3.22 percent, down from 3.26 percent. In addition to this week's debt sales, investors are looking ahead to February retail sales on Wednesday for any fresh evidence the U.S. economic recovery may be gaining traction. Some investors expect price moves in Treasuries to be fairly muted, however, before the Federal Open Market Committee's next policy meeting March 19-20. "We expect rallies in bonds to be short-lived in the absence of a meaningful correction in equities and today's uneventful three-year auction will shift attention to the more important 10-year and 30-year auctions in coming days," said Richard Gilhooly, fixed income strategist at TD Securities in New York. "The next significant shift in yields is likely to come after the FOMC meeting next week as the market waits to see whether the Fed is impressed with recent developments," he said. The Fed on Tuesday bought $1.38 billion of Treasury inflation-protected securities maturing April 2028 through February 2043 as part of its latest stimulus program.