(Updates prices, adds comment)
* U.S. 30-year bond yield falls to lowest since June 2013
* Geopolitics still very much a factor in the Treasury
* Yield curve continues to flatten
By Gertrude Chavez-Dreyfuss
NEW YORK, July 21 U.S. long-term Treasury debt
prices rose on Monday on safe-haven demand increased by
investors' caution over turmoil in the Middle East and growing
geopolitical tension following the downing of a Malaysian
Airlines aircraft in Ukraine.
U.S. 30-year bond yields, which move inversely with prices,
fell to their lowest in more than a year.
Investors were also bracing for an interest-rate hike from
the Federal Reserve next year, with the gap between short- and
long-term interest rates, mainly the spread between the yields
of 2-year notes and 10-year bonds, shrinking on Monday to its
narrowest since June last year.
"The buying in Treasuries is possibly geopolitical," said
Jonathan Rick, rate derivatives strategist at Credit Agricole in
New York. "We had the aggressive move on Thursday, then we had
the selloff on Friday, so this might have been just a reversal
from that selloff."
The latest headlines on the fighting in Gaza were still
dire. The Palestinian death toll in an Israeli offensive in the
Gaza Strip jumped to more than 500 on Monday, as the United
States, alarmed by escalating civilian bloodshed, took a direct
role in efforts to secure a cease-fire.
Following the crash of Malaysia Airlines Flight MH17 last
week that resulted in the death of 298 passengers and crew,
Western governments have threatened Russia with stiffer
penalties for what they say is its backing of pro-Russian
militia who, their evidence suggests, shot the plane down.
Russia, in response, challenged the United States to provide
proof that pro-Russian troops were involved.
Aside from geopolitics, the other big story in the Treasury
market is the flattening of the yield curve.
The spread between the yields of 5-year notes and 30-year
bonds also fell on Monday to its narrowest since February 2009.
"The Treasury market is somewhat bifurcated insofar as the
front end is tied to policy expectations, and as we move closer
to the first hike, 2- and 3-year yields continue to grind
higher," CRT Capital said in a research note.
"On the other hand, whereas traditionally flight-to-quality
moves have favored the front end of the curve, in recent weeks,
the pattern has shifted to favoring 10s and 30s."
The benchmark 10-year U.S. Treasury note was up
2/32 in price to yield 2.474 percent, while the 30-year Treasury
bond was up 17/32 in price, pushing the yield down to 3.264
percent. The long bond's yield fell as low as 3.249
percent, the lowest since June 2013.
(Editing by W Simon and Jan Paschal)