TREASURIES-U.S. bond prices rise on China jitters, solid auction

Wed Mar 12, 2014 4:10pm EDT

Related Topics

* Copper hits near four-year lows

* Demand solid as U.S. Treasury sells $21 bln in 10-year notes

* Treasuries buoyed by China growth concerns

By Sam Forgione

NEW YORK, March 12 (Reuters) - U.S. Treasuries prices rose in safe-haven bids on Wednesday on worries over the health of China's economy, which helped fuel strong demand at the U.S. government's 10-year Treasury note auction.

Copper's fall to near four-year lows and China's first domestic bond default have raised concerns about a possible unraveling of the many loan deals which have used the metal as collateral.

The concerns over China's economy were the culprit for the safe-haven bids for U.S. Treasuries, said Jeffrey Cleveland, chief economist at Payden & Rygel in Los Angeles.

Shanghai copper fell by its 5-percent daily limit on Wednesday and London copper touched a 44-month low. Bearish sentiment has swept through the copper market since a bond default by Chinese solar panel company Chaori Solar on Friday ignited worries about credit market risk in the country.

Adding to recent concerns over the Chinese economy, data on Saturday showed China's exports unexpectedly tumbled in February, swinging the trade balance into deficit.

The 10-year U.S. Treasury note last traded up 12/32 in price to yield 2.72 percent, up in price from a yield of 2.766 percent late on Tuesday. Bond yields move inversely to their prices.

Geopolitical tensions over Russia and Ukraine also added to investor worries and spurred demand for safe-haven Treasuries.

Ukraine's government appealed for Western help on Tuesday to stop Moscow from annexing Crimea, but the Black Sea peninsula, overrun by Russian troops, seemed fixed on a course that could formalize rule from Moscow within days.

"As long as geopolitical risk in Russia and Ukraine is one of the headlines, it will boost Treasury prices," said Cleveland of Payden & Rygel.

U.S. Secretary of State John Kerry will meet with his Russian counterpart Sergei Lavrov in London on Friday ahead of a referendum on Sunday on whether Crimea will join Russia or become independent.

The Treasury attracted solid demand at its auction of $21 billion in 10-year notes, which extended gains in Treasuries. The high yield at which the bonds were sold was lower than expected, while direct bidders such as institutional investors bought their biggest share of the bonds since September.

"Rates are at fairly attractive levels," said George Rusnak, national director of fixed income for Wells Fargo Private Bank in Philadelphia, on the demand for Treasuries.

Benchmark bond yields rose and prices fell last week when a calming of geopolitical tensions and stronger-than-expected U.S. jobs data pushed the benchmark 10-year Treasury yield up 18 basis points to 2.79 percent. The 10-year yield hit 2.82 percent last Friday, its highest level in six weeks.

Rusnak said that investors were also likely favoring Treasuries to stocks given recent record highs in the U.S. stock market. Investors are "trying to take a little bit of that risk off the table," he said.

On Wall Street, the Standard & Poor's 500 stock index last traded down 0.22 percent. The concerns about a weakening Chinese economy hit stocks earlier in the session.

The Federal Reserve bought $960 million in Treasury Inflation-Protected Securities maturing between April 2028 and Feb. 2044 on Wednesday, which had little impact on Treasuries prices.

The 30-year U.S. Treasury bond last traded up 26/32 in price to yield 3.66 percent, up in price from a yield of 3.708 percent late on Tuesday.

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