TREASURIES-Prices up as European debt yields plunge, U.S. jobs gains solid

Fri Jun 6, 2014 11:16am EDT

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(Recasts, adds details, quote, updates prices)
    * Treasuries prices gain as jobs data meets expectations
    * European debt yields fall to record lows
    * U.S. debt seen attractive relative to Spanish, Italian
bonds
    * Treasury to sell $62 bln coupon-bearing debt next week

    By Karen Brettell
    NEW YORK, June 6 (Reuters) - U.S. Treasuries prices gained
on Friday as falling yields on European bonds made U.S. debt
relatively attractive, while data showed U.S. employers
maintained a solid pace of hiring in May.
    Italian, Spanish and Irish bond yields fell to record lows a
day after the European Central Bank cut all its main rates to
record lows, imposed negative interest rates on overnight bank
deposits and outlined a new long-term loan program for banks to
promote lending to small and mid-sized businesses.
 
    The rally in European debt pushed yields on Italian and
Spanish debt closer to those offered by Treasuries, which are
considered a much lower risk, making the U.S. bonds more
attractive by comparison.
    "The ECB delivered what the market was expecting in terms of
a rate cut and was on the dovish side in terms of easing
policies. That is a positive for European bonds and global fixed
income. With European bonds rallying, it inevitably drags U.S.
rates along with it," said Michael Chang, an interest rate
strategist at Credit Suisse in New York.
    Benchmark 10-year notes were last up 2/32 in
price to yield 2.58 percent, after earlier falling as low as
2.53 percent.
    That compares with 10-year Spanish bond yields 
at 2.62 percent and Italian bond yields offering
2.73 percent. Irish government bonds paid less than
comparable Treasuries for a second day, with 10-year yields
dropping to 2.43 percent.
    Demand for higher yield may help support Treasuries even as
the U.S. government sells $62 billion in new coupon-bearing
supply next week, including $28 billion in three-year notes on
Tuesday, $21 billion in 10-year notes on Wednesday and $13
billion in 30-year bonds on Thursday.
    "It's going to be hard for the Treasury market to sell off a
whole lot, given where peripheral European debt is at the
moment," said Dan Mulholland, managing director in Treasuries
trading at BNY Mellon in New York.
    Treasuries also rallied after nonfarm payrolls increased by
217,000 last month, returning employment to its pre-recession
level and offering confirmation the economy has snapped back
from a winter slump. Economists polled by Reuters had expected
employment to increase by 218,000 last month.
    The unemployment rate held steady at a 5-1/2 year low of 6.3
percent even as some Americans who had given up the search for
work resumed their hunt. That was because there was an increase
in household employment. 
       

 (Reporting by Karen Brettell, Editing by W Simon and Dan
Grebler)
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