Risk-averse investors snap up Treasury debt

By Ellen Freilich

NEW YORK, July 9 (Reuters) - Sold! To domestic and foreign investors whose appetite for safe-haven U.S. government debt appeared capable of handling ample supply: $73 billion in Treasury notes.

The breakdown: $35 billion in U.S. Treasury three-year notes, $19 billion in 10-year notes, $11 billion in 30-year bonds and $8 billion in Treasury Inflation-Protected Securities.

Indeed, 10-year benchmark note US10YT=RR yields kept falling through the week, even as billions of dollars in supply was coming to market.

Analysts said that phenomenon underscored the axiom that perceptions about the economy's prospects and monetary policy have more influence on yields than supply considerations.

On the monetary policy front, the Federal Reserve looks committed to a near zero-percent interest-rate policy for short-term rates for the forseeable future.

With regard to the economy, a more subdued view of the economy's near-term and medium-term prospects, with a concurrent damping of inflation expectations and equity pullback, fed the demand for U.S. debt.

"The fear of inflation has abated a bit; oil pulled back, and gold has come down a bit," said Gary Thayer, senior economist at Wells Fargo Advisors in St. Louis. "That made some investors take a second look at Treasury yields, which had risen so much in June. That helped the auctions."

Ten-year U.S. Treasury yields rose to 4 percent in June.

The recent pullback in equities also "made investors question whether they should look more seriously at Treasuries again as an alternative to more risky assets," Thayer said.

Safe-haven investments like Treasuries benefited from market positioning ahead of the U.S. second-quarter corporate earnings season, said BNP Paribas interest-rate strategist Patrick Jacq in a research note.

"The 'green shoots' effect is fading and is no longer enough to fuel risk appetite," he said.

The appetite for the Treasury securities sold this week was especially notable since most of the money raised came from new cash, with limited support from securities that were maturing and whose cash needed to be reinvested.

"The near-term outlook remains positive for govvies," said BNP's Jacq. "Volatility is gradually rising from the recent lows, equities are highly vulnerable and exposed to further setbacks, and concerns on credit - highlighted by credit default swaps - are no longer easing.

"In addition, commodity prices are falling again, suggesting less confidence in the strength of the recovery and no inflation risk in the coming months. We retain a positive view on govvies in the near term," Jacq said. (Editing by Padraic Cassidy)