(Recasts, updates prices, adds comment)
* Dearth of U.S. economic data puts focus on geopolitics
* Global tension seen capping yields
By Gertrude Chavez-Dreyfuss
NEW YORK, July 23 U.S. long-term Treasury debt
prices ended slightly lower on Wednesday in thin trading, but
their near-term outlook remained positive on safe-haven demand
as global tensions in the Middle East and Ukraine persisted.
Buying in Treasuries held steady for most of the session and
kept yields -- which move inversely with bond prices -- in check
following Tuesday's benign U.S. consumer inflation number. For
some strategists, the tame CPI data suggested that the Federal
Reserve is not in a hurry to raise interest rates.
A large $2.774 billion buyback from the New York Federal
Reserve of U.S. Treasuries maturing August 2022 through May 2024
as part of its economic stimulus program, also helped keep a lid
But with no major U.S. economic data, the market focused
squarely on the ongoing conflict in the Middle East and Ukraine.
"We would expect geopolitical risks to put downward pressure
on yields," said Jennifer Vail, head of fixed income research at
U.S. Bank Wealth Management in Portland, Oregon.
She noted that U.S. Bank has reduced its year-end forecast
for the U.S. 10-year note yield to 3.2 percent, 20 basis points
lower than its original estimate due to the ongoing geopolitical
Tension increased in Ukraine as pro-Russian rebels shot down
on Wednesday two Ukrainian fighter jets, and the missiles that
brought them down might have been fired from Russia.
In the Middle East, meanwhile, Gaza fighting raged on
Wednesday, displacing thousands more Palestinians in the
battered territory, even as American aviation authorities
extended a ban on U.S. flights to Tel Aviv for a second day,
spooked by rocket salvoes out of the Gaza Strip.
In afternoon trading, benchmark 10-year U.S. Treasury notes
were little changed in price, yielding 2.465
percent, while the 30-year Treasury bond was down 4/32 in price,
pushing the yield up to 3.259 percent. On Monday
U.S. 30-year Treasury bond yields fell to their lowest since
Many strategists have made a big deal about Tuesday's tame
CPI reading, which suggested that the Fed will keep interest
rates low for longer.
U.S. Bank's Vail disagreed with this view, saying the U.S.
economy is no longer in a disinflationary environment.
"We're at a level where we're seeing a healthy improvement
in inflation. Is it going to surpass the Fed target any time
soon? Probably not," said Vail. "But I don't think inflation
would be the primary driver in the change in interest rate
Thierry Albert Wizman, interest rates and currencies
strategist at Macquarie in New York, echoed Vail's sentiment.
He said U.S. annualized core inflation is actually trending
higher, with averages of 1.6 percent in the fourth quarter of
2013, 1.8 percent in the first quarter this year, and 2.6
percent in the second quarter.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by James
Dalgleish and Diane Craft)