August 4, 2011 / 1:35 PM / 6 years ago

TREASURIES-Bonds rally as investors seek safety



 * Benchmark yields near nine-month lows
 * Small drop in new U.S. jobless claims recorded
 * U.S. non-farm payrolls seen adding 85,000 jobs
 * ECB's Trichet says risks to outlook 'broadly balanced'
 (Adds comment, updates prices)
 By Ellen Freilich
 NEW YORK, Aug 4 (Reuters) - U.S. Treasury debt prices
rallied on Thursday as recession fears sustained investors'
avid appetite for safe-haven U.S. government debt.
 A minor drop in new U.S. jobless claims evoked little
market reaction. Remarks by European Central Bank President
Jean-Claude Trichet (ECB) received more attention.
 Trichet recognized a deceleration in the pace of economic
growth in the last few months and said he anticipated moderate
expansion in the months ahead. He called risks to the growth
outlook "broadly balanced."
 The bid for safe-have U.S. debt briefly intensified after
Trichet's remarks. The 30-year Treasury bond US30YT=RR, up
1-2/32 in price before the Trichet headlines hit, was up
1-10/32 afterward. The 30-year yield fell to 3.83 percent from
3.90 percent late on Wednesday.
 The U.S. bond market has not seen as sharp a week-long drop
in yields since the height of the global financial crisis.
 Benchmark 10-year notes US10YT=RR also rallied due to
investors' concerns about the economic outlook. Up 12/32 before
Trichet's remarks, they were up 15/32 afterward. Their yields
fell to 2.57 percent from 2.63 percent on Wednesday.
 News that new U.S. jobless claims fell 1,000 to 400,000
last week had no discernible impact. American receiving
extended emergency jobless benefits fell by 42,042 to 3.72
million, adding fiscal restraint to the economy and threatening
more of the same.
 "People are falling off these ranks," said David Ader, head
of government bond strategy at CRT Capital Group.
 "Keep in mind the program of extended jobless benefits ends
next June and so these 3.72 million people are either
'incentivized' to get work (the cold, cynical view) or suffer a
tragic loss of support, a support that has the most effective
multiplier impact of any government payments."
 Bond prices have rallied and yields have sunk as investors
sharply tempered their views of the economy's first-half growth
and cut expectations for the second half.
 In the euro zone, Italian and Spanish bond yields came back
off 14-year highs on Thursday due to a well-bid Spanish debt
auction and speculation that Japan's intervention to weaken the
yen will inspire the ECB to revive its dormant bond-buying
programme.
 Signs that the euro zone debt crisis could soon swallow
countries that are seen as "too big to fail" raised
expectations that policymakers could soon act to temper the
Italian and Spanish selloff.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^  
Spanish/Italian yield curves: link.reuters.com/ted92s
Spanish/Italian CDS spread:   link.reuters.com/sed92s
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 Worries over evidence the economic recovery had lost
traction were fueled late last week by government data showing
anemic U.S. growth in the first half of the year.
 Investors also considered the idea that the Federal Reserve
might begin another Treasuries purchase program to aid growth.
For more see [ID:nN1E7721YL]
 The weekly jobless claims figures were the last economic
report before Friday's Labor Department July employment data.
 Economists polled by Reuters estimated that Friday's report
will show that private payrolls added 115,000 jobs in July, but
total nonfarm payrolls expanded by 85,000 jobs.
 (Editing by Theodore d'Afflisio)


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