TREASURIES-Yields fall on safety buying as Ukraine tensions rise

Tue Apr 15, 2014 3:01pm EDT

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(Adds details, updates prices)
    * Prices gain as Ukraine tensions spark safety buying
    * NY manufacturing disappoints, inflation data benign
    * Fed buys $2.20 bln notes due 2020, 2021

    By Karen Brettell
    NEW YORK, April 15 (Reuters) - U.S. Treasury debt prices
gained on Tuesday as rising tensions in Ukraine sparked a safety
bid for U.S. bonds, and a weak manufacturing survey for New York
state pointed to sluggish economic momentum.
    Geopolitical tensions were high as Russia declared Ukraine
on the brink of civil war on Tuesday as Kiev said an
"anti-terrorist operation" against pro-Moscow separatists was
under way, with troops and armored personnel carriers seen near
a flashpoint eastern town. 
    Concerns over escalating conflict added to U.S. bond
purchases, after a gauge of manufacturing in New York state
earlier grew at a slower rate than the previous month, and below
expectations in April. 
    "It added to the Treasuries rally in the long end; emerging
markets overall are getting hit harder," said Michael Chang, an
interest rate strategist at Credit Suisse in New York.
    U.S. benchmark 10-year Treasury notes were up
6/32 in price to yield 2.62 percent, down from 2.66 percent
earlier on Tuesday.
    Thirty-year bonds, meanwhile, gained 19/32 in
price to yield 3.45 percent, down from 3.50 percent earlier.
    Shorter-dated Treasuries yields briefly rose earlier on
Tuesday after the Labor Department said on Tuesday its Consumer
Price Index increased 0.2 percent last month as a rise in food
and shelter costs offset a decline in gasoline prices. The CPI
index had gained 0.1 percent in February. 
    The data came as the Treasury is due on Thursday to sell $18
billion in five-year Treasury inflation-protected securities, or
TIPS.
    U.S. inflation-linked bonds have been among the worst
performers since the Fed last year indicated that it would begin
tapering its monthly bond purchases, with investors worrying
over what catalyst will lead inflation higher.
    Investors are focused on a busy week of data releases for
signs on the strength of the economy as the Federal Reserve
pares its bond purchases and looks ahead to interest rate hikes
that most expect to begin next year.
    Housing data on Wednesday will be evaluated to see if
activity picked up, after months of subdued data that many have
blamed on the winter weather.
    "When the clouds part, if we don't get a lift to housing,
that could be a big issue," said Gennadiy Goldberg, an interest
rate strategist at TD Securities in New York.
    The Fed will release its Beige Book report on Wednesday, a
collection of anecdotes from the central bank's business
contacts across the country.
    Fed Chair Janet Yellen will also speak on Wednesday about
the economy. She spoke on Tuesday about markets regulation, but
did not discuss monetary policy. 
    A Philadelphia manufacturing survey released on Thursday
will also be in focus after Tuesday's weak New York report.
    The bond market will close early on Thursday and be closed
all day on Friday for the Good Friday holiday.
    The Fed bought $2.20 billion in notes due 2020 and 2021 on
Tuesday as part of its ongoing purchase program. It will
purchase between $0.90 billion and $1.15 billion in bonds due
from 2036 to 2044 on Wednesday.

 (Editing by Andrew Hay and G Crosse)
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