TREASURIES-Bond prices edge higher on expectations of lower yields

NEW YORK Mon May 19, 2014 10:40am EDT

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NEW YORK May 19 (Reuters) - U.S. Treasuries prices edged higher on Monday on sentiment that bond yields could hit multi-month lows again, leading investors to mainly seek longer-dated bonds to avoid price losses.

Analysts said that investors sought to avoid being on the losing side of another push downward in yields after benchmark 10-year U.S. Treasury note yields tumbled to six-month lows of 2.473 percent last Thursday.

"When we get this dropping of yield, the folks that have not participated have really lagged from a performance perspective," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago. "You don't want to be caught off-side."

Traders continued to favor longer-dated bonds instead of shorter-dated notes on Monday on the belief that longer-dated bond prices would continue to rise, especially if already-weak first-quarter gross domestic product growth of just 0.1 percent is revised weaker, analysts said.

"You're really starting to get into a tenuous situation with GDP growth where people don't want to be caught too short in duration," Hoogendoorn said.

The U.S. government will publish its second GDP estimate on May 29. First-quarter GDP growth could be revised downward to -0.6 percent, economists say.

The slight move upward in Treasuries prices on Monday occurred despite a lack of U.S. economic data. Analysts said that traders were preparing for another push lower in yields even if U.S. economic data did not warrant such a move.

"Investors are not looking to economic data to govern these rate moves," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. He said the move into longer-dated bonds was a "momentum trade" that could continue despite strong U.S. economic data.

Traders expected upcoming comments from Dallas Federal Reserve Bank President Richard Fisher to reiterate the Fed's path of cutting its monthly bond purchases, and said the impact on the bond market would likely be muted.

Fisher, who votes on Fed policy this year, will speak at a conference on monetary policy at the Bush Institute in Dallas, where he is to appear on a panel with San Francisco Fed President John Williams.

U.S. 30-year Treasury bond prices were last up 3/32 to yield 3.34 percent, from a yield of 3.35 percent late Friday. Benchmark 10-year U.S. Treasury notes were last up 3/32 in price to yield 2.507 percent, from a yield of 2.52 percent late Friday.

Prices on 2-year U.S. Treasury notes last traded mostly flat with a yield of 0.35 percent.

On Wall Street, U.S. stocks were mixed, with the benchmark S&P 500 last up 0.18 percent but the Dow trading flat. (Reporting by Sam Forgione; Editing by Nick Zieminski)

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