* Bond prices rise for fourth session
* Consumer spending data adds to recovery doubts
* Auction of seven-year notes come with 2.152 percent high
(Adds comments, auction results and late prices)
By Michael Connor
NEW YORK, June 26 U.S. Treasuries yields dropped
on Thursday as traders eyeing a possible slowing of American
economic growth drove up prices for a fourth straight day.
Yields of 10- and 30-year Treasuries touched three-week lows
as investors, already surprised on Wednesday by data showing the
U.S. economy contracted more than previously thought in the
first quarter, reacted to data showing short-of-forecast
increases in U.S. consumer spending.
"People are assessing where they think their second- and
third-quarter, fourth-quarter, GDP estimates are going to be.
said Wilmer Stith, co-manager in Baltimore of the Wilmington
Broad Market Bond Fund. "Even for those that are optimistic,
it's like getting that 'F' in college in that first test; it's
harder to raise that average up."
The Commerce Department said May spending increased 0.2
percent. Spending, which accounts for more than two-thirds of
U.S. economic activity, had been forecast to rise 0.4 percent
after a 0.1 percent dip in April.
"Just at face value, the small increase in May suggests that
spending is not going to be as healthy as people are hoping
for," said Kim Rupert, managing director of global fixed income
at Action Economics in San Francisco. "If the economy doesn't
bounce back smartly from the 2.9 percent decline in Q1, then it
looks like the Fed may be lower for longer still."
Sharon Stark, chief fixed income strategist at D.A.
Davidson, said bond trading was also affected by a Labor
Department report showing new applications for state
unemployment benefits slipped 2,000 to a seasonally adjusted
312,000 for the week ended June 21.
The declining claims suggest a recent streak of payroll job
gains above 200,000 is likely to be sustained, lending the
economy enough momentum for inflation to start perking up.
Yields on 30-year Treasuries fell as low as
3.335 percent, a level last touched on June 2. The bonds last
traded to yield 3.3508 percent, up 19/32 in price.
Benchmark 10-year notes were up 10/32 to yield
2.5232 percent after hitting a low of 2.516 percent, also a
level last seen June 2.
End-of-quarter buying by some money managers dressing up
balance sheets for financial reports was also weighing on
yields, according to Stith, and may for the moment be
compensating for softer demand by banks.
Banks, which have stepped up Treasuries purchases in recent
months, were thin on the ground on Thursday at a Treasury
Department auction of $29 billion of new seven-year notes, Stith
Thursday's auction, which followed a $35 billion auction of
five-year notes on Wednesday, came with a high yield of 2.152
"The last time we had a five-year and seven-year we felt big
bank demand. Really not so much this time around, and it will be
interesting to see whether we hold on to new gains as we have
now," Stith said.
(Reporting by Michael Connor in New York; Editing by Tom Brown
and James Dalgleish)