* U.S. 30-year bond yields also fall, near two-week lows
* German Bund yields down on the day, weigh on Treasury
* Focus on supply later in the session
By Gertrude Chavez-Dreyfuss
NEW YORK, May 28 Yields on U.S. 10-year Treasury
notes dropped to their lowest in 10 months on Wednesday, in line
with falls in the German bond market following soft data from
the euro zone's largest economy.
German 10-year Bund yields, the benchmark for
euro zone borrowing, were down on Wednesday at 1.351 percent.
Yields fell after an unexpected increase in German unemployment
and a deceleration in the euro zone money supply. The data
reinforced expectations that the European Central Bank will
introduce further stimulus at next month's meeting.
The rally in Bunds spilled over to U.S. Treasuries, which
saw 10-year note yields tumble to their lowest since July. U.S.
30-year bond yields also fell, to near two-week lows.
"Mostly what's going on at the moment is being led by
Germany and we're just reacting," said David Keeble, global head
of interest rates strategy at Credit Agricole in New York.
"There seems to be nothing U.S. about this rally in Treasuries."
One of the economic numbers that set off the rally in Bunds
was the German unemployment data, which posted its strongest
monthly rise in over five years in May to 2.905 million jobless
on a seasonally-adjusted basis.
The data cemented expectations of more easing measures for
the euro zone. ECB Executive Board member Yves Mersch said as
much on Wednesday. He said an ECB meeting next week could yield
a combination of policies to tackle low inflation and low credit
growth, but the timing of the implementation could vary.
In mid-morning trading, prices on 30-year Treasury bonds
were up 26/32 to yield 3.322, from 3.364 percent
late Tuesday. U.S. 30-year yields hit a low of 3.311 percent,
the lowest since May 15.
Benchmark 10-year U.S. Treasury notes were up
12/32 in price to yield 2.473 percent, from 2.518 percent on
Tuesday. Yields touched a low of 2.466 percent, their weakest
level since July 22 last year.
Supply is once again on the agenda on Wednesday, with $118
billion on the auction block, including the $35 billion in
five-year notes, the reopening of the $13 billion in two-year
floating rate notes, the $45 billion in 4-week bills, and $25
bln in 52-week bills.
(Editing by Nick Zieminski)