July 29, 2014 / 12:50 PM / 3 years ago

TREASURIES-Treasuries rally as eurozone bond yields fall to record lows

* Yield curve flattens before 5-yr note sale
    * GDP, employment data, Fed in focus for Wednesday

    By Karen Brettell
    NEW YORK, July 29 (Reuters) - U.S. Treasuries prices gained
on Tuesday, helped by record low yields on German government
bonds, and the U.S. yield curve flattened to five-year lows
before the U.S. was due to sell new five-year notes.
    Ten-year German government bond yields, the benchmark for
euro zone borrowing costs, hit record lows of 1.12 percent
, as the prospect of a fresh round of long-term
loans to banks from the European Central Bank from September
supported euro zone debt.
    Treasuries rallied in line with the bunds, with Spanish and
Italian bond yields also falling to fresh lows. Spanish 10-year
yields fell to 2.46 percent, returning less than
comparable 10-year Treasuries that currently yield
2.47 percent.
    "It starts with bunds, as they compress through 1.15 percent
(yields) it makes more sense to get a little more carry in some
of the other sovereigns," said Jim Vogel, an interest rate
strategist at FTN Financial in Memphis Tennessee.
    The yield spread between U.S. five-year notes and 30-year
bonds also flattened to its lowest level since 2009 as dealers
and investors prepared for a new $35 billion sale of five-year
notes, the second sale of $93 billion in new coupon-bearing
supply this week.
    The curve between five- and 30-year yields 
flattened to 153 basis points.
    The sale comes before a busy day on Wednesday that will
include an employment estimate for Friday's highly anticipated
jobs report for July, gross domestic product data for the second
quarter and the statement from the Federal Reserve's two day
    Uncertainty from this week's heavy data calendar may weigh
on Tuesday's five-year note auction.
    "It's the five year today where people should build a
premium in, because of the suspense of the triple punch
tomorrow," said Vogel.
    The Treasury will also sell $29 billion in seven-year notes
on Wednesday in addition to $15 billion in two-year
floating-rate notes.
    Housing and consumer confidence data are due later Tuesday.

 (Editing by Bernadette Baum)

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