30-yr bond rallies sharply as growth fears bubble

By Pedro Nicolaci da Costa

NEW YORK, Aug 7 (Reuters) - Prices on the 30-year Treasury bond took off on Thursday as concerns over growth and relief over easing energy costs drove the strongest indirect bidder interest since the long bond's reintroduction.

As buying intensified following the last leg of the government's refunding auction, the 30-year bond rallied over two full points.

The indirect bid on the $10 billion sale, which includes foreign central banks and customers of primary dealers, accounted for about 43 percent of the deal, the highest since the Treasury began to reissue the long bond in 2006 following a three-year hiatus.

"The results are good news for those worried about the possibility of interest rates rising, but bad news if one thinks of why it is that investors showed such a strong preference for Treasuries over everything else," said Tony Crescenzi, chief bond market strategist at Miller Tabak.

At the height of selling, 30-year yields, which move opposite to the bond's price, were on track for their biggest one-day decline since March.

The outlook for longer Treasuries was helped in part by a falling stock market and ongoing nervousness about the financial sector, particularly after insurer American International Group posted its third straight quarterly loss.

But there were also a deeper worry about the overall economy after weekly jobless claims jumped to 455,000, a six-year high and a level generally associated with recessions.

Another help to longer-dated Treasuries was the recent pullback in oil prices down to around $120 a barrel from a record around $147 hit last month.

This retreat has also contributed to a modest rebound in energy prices, but one that some analysts believe is short-lived, since it is underpinned by the prospect of a global economic slowdown that would likely take another swipe at sagging corporate profits. (Editing by Leslie Adler)