August 25, 2014 / 6:46 PM / 3 years ago

TREASURIES-Yields drop as hopes for more ECB stimulus boosts demand

3 Min Read

(Adds quotes, updates prices)
    * Yields fall as European bonds rally
    * Draghi remarks stir hopes of further ECB stimulus
    * Weak German sentiment, French political issues increase
safety bid
    * Treasury to sell $93 bln in 2-, 5-, 7-year notes

    By Karen Brettell
    NEW YORK, Aug 25 (Reuters) - U.S. Treasuries prices gained
modestly on Monday in light trading in line with rallying
European bonds on expectations the European Central Bank will
use more stimulus to revive flagging growth in the region.
    ECB President Mario Draghi said Friday the bank was prepared
to respond with all available tools if euro zone inflation drops
further. Investors took this to mean the ECB could start an
asset purchase program or other stimulus measures, which would
boost assets like stocks and bonds. 
    Draghi's comments caused yields on most euro zone government
bonds to fall to record lows, with Treasuries also benefiting
from the rally.
    "Part of it is the rally in European rates. Generally
markets are pricing for a higher chance of the ECB being more
accommodative going forward," said Michael Chang, an interest
rate strategist at Credit Suisse in New York.
    Benchmark 10-year notes were last up 3/32 in
price to yield 2.40 percent, down from 2.41 percent late on
Friday.
    Treasuries also gained earlier on Monday on weak business
sentiment data in Germany for the fourth month running and after
a row over the lack of growth led the French government to
resign. 
     "We had a small safe haven bid," said John Canavan, fixed
income analyst at Stone McCarthy Research Associates in
Princeton, New Jersey. 
    Durable goods data on Tuesday will be the next focus, before
the Treasury is also due to begin auctioning $93 billion in new
coupon-bearing supply this week.
    "I think durable goods orders in the morning will get more
attention, in part because of some of the uncertainty about it,"
Canavan said.
    The Treasury will sell $29 billion in two-year notes on
Tuesday, $35 billion in five-year notes on Wednesday and $29
billion in seven-year notes on Thursday.
    It will also sell $13 billion in two-year floating rate
notes on Wednesday.
    Trading was modest on Monday ahead of the U.S. Labor Day
holiday on Sept. 1, with traders in Britain out for a bank
holiday on Monday.

 (Editing by Bernadette Baum and Andrew Hay)

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