TREASURIES-Prices hit one-week high as Crimea tensions heighten

Thu Mar 13, 2014 3:58pm EDT

Related Topics

* Kerry remarks about Crimea referendum send yields lower

* Weak China growth supports safe-haven demand

* U.S. jobless claims lowest since late November

By Sam Forgione

NEW YORK, March 13 (Reuters) - Longer-dated U.S. Treasuries prices rallied to their highest levels in over a week on Thursday on heightened tensions over a possible U.S.-European response against Russia if a referendum in Ukraine's Crimea region goes ahead.

U.S. Secretary of State John Kerry said Thursday that a "serious series of steps" would be imposed on Monday by the United States and Europe if a referendum on Crimea joining Russia takes place on Sunday as planned.

Russia also launched new military exercises near its border with Ukraine, showing no sign of backing down in its plans to annex its neighbor's Crimea region despite a stronger than expected drive for sanctions from the EU and United States.

"People are increasing the probability that there may be more of a conflict than was thought before," said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York. She said the concerns drove safe-haven demand for Treasuries.

Continued concerns over China's economic growth also worried investors. Growing jitters about the financial health of bloated industries in China have prompted many banks to cut lending in these sectors by as much as 20 percent, sources said.

China's industrial output rose 8.6 percent in the first two months of 2014 from a year earlier, missing market expectations for a 9.5 percent rise, while growth in retail sales was the slowest in three years.

"China growth expectations are a huge engine in the global economy, and anything that shakes that foundation could lead to a risk-off tone," said Gabriel Mann, U.S. Treasuries strategist at RBS Securities in Stamford, Connecticut.

The benchmark 10-year U.S. Treasury note last traded up 21/32 in price to yield 2.65 percent, up sharply in price from late Wednesday, when the yield was at 2.726 percent. Bond yields move inversely to their prices.

The yield on the 30-year Treasury bond, meanwhile, last traded up 1-10/32 in price from late Wednesday when the yield was at 3.668 percent.

The rise in prices on longer-dated Treasuries to their highest since March 4 reversed a dip earlier in the day after the release of better-than-expected U.S. retail sales and jobless claims data.

The Commerce Department said retail sales increased 0.3 percent last month as receipts rose in most categories, ending two straight months of declines, while the Labor Department said initial claims for state unemployment benefits dropped 9,000 to a seasonally-adjusted 315,000 last week, marking the lowest reading since late November.

The drop in new claims for unemployment benefits and the rise in retail sales, which account for about 30 percent of consumer spending, indicated that the U.S. economy could be gaining traction after frigid temperatures disrupted economic activity at the end of 2013 and the start of this year.

The Treasury sold $13 billion in 30-year bonds on Thursday. Direct bidders such as institutional investors bought 12.59 percent of the bonds, marking their smallest share since December and indicating weak demand.

The auction, which was the Treasury's last round of $64 billion in total new supply this week, and the Federal Reserve's purchase of $3.74 billion in Treasuries maturing between March and Nov. 2018 had little impact on Treasuries prices.

On Wall Street, all three major U.S. stock indexes fell on the rising tensions surrounding Ukraine. The benchmark Standard & Poor's 500 stock index was last down 1.21 percent.

FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article