* Talk of Western strike in Syria spurs safety bid
* Treasury sells two-year notes at high yield of 0.386 pct
By Ellen Freilich and Luciana Lopez
NEW YORK, Aug 27 Prices for U.S. Treasuries rose
on Tuesday in safe haven bidding after reports that Western
forces could attack Syria within days prompted nervous investors
to dump riskier assets.
Global stocks also slumped on those fears, with investors
instead opting for the safety of U.S. government debt.
"The concerns about a potential escalation in Syria have led
to a risk-off move across the board and high-rated bonds like
Treasuries have benefited from the flight to quality," said Jake
Lowery, a Treasury trader at ING Investment Management.
Participants at a meeting in Istanbul told Reuters that U.S.
and other diplomats warned Syrian opposition leaders on Monday
to expect action that would punish Syrian President Bashar
al-Assad for poison gas attacks - and to be ready to negotiate
if his government sues for peace.
The news about Syria overshadowed economic indicators that
might normally have carried more weight, such as a rise in the
German business confidence index. That more typically would have
hurt Treasuries and whetted risk appetite.
The S&P/Case-Shiller index showing home prices rose in June
also had little impact, but bonds briefly trimmed gains after a
stronger-than-forecast reading on consumer confidence.
"Generally, the economic picture in developed markets is one
of positive surprises," Lowery said. "There's a reasonable
outlook for the next U.S. payrolls report, and a high
probability of the Fed announcing some asset purchase tapering
at their September policy meeting."
"With that backdrop, the economic and monetary picture is
not the cause for today's rally. It's the geopolitical risk
related to Syria that is causing a flight to quality."
On Tuesday, prices on the benchmark 10-year Treasury note
rose 20/32, with their yields easing to 2.714
percent from 2.787 percent late on Monday.
Treasuries yields recently touched two-year highs after data
suggested the world's biggest economy was ready for the Fed to
back off its stimulus program, perhaps as soon as the central
bank's upcoming policy meeting on Sept. 17-18.
But yields have eased as fresh data has painted more of a
Investors are now eyeing August nonfarm payrolls data, due
Sept. 6, as the next data milestone before the Fed's meeting
The Treasury this week is auctioning $98 billion in new
two-, five- and seven-year debt. Those sales kicked off on
Tuesday with a $34 billion auction of two-year notes at a high
yield of 0.386 percent.
"The geopolitical risk associated with the tensions in Syria
combined with a low dealer takedown suggest that more buyers
will be coming into the market," said Thomas Simons, money
market economist at Jefferies & Co.
As part of its ongoing efforts to stimulate economic growth
and cut unemployment, the Federal Reserve purchased $5.18
billion in Treasury coupons on Tuesday.