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TREASURIES-Bonds rally as European debt yields fall to record lows
August 27, 2014 / 6:41 PM / 3 years ago

TREASURIES-Bonds rally as European debt yields fall to record lows

(Adds details, updates prices)
    * Ukraine tensions, month-end buying adds to bid
    * Treasury sell $35 bln five-year notes to strong demand
    * Month-end buying seen likely in 5-yr, 7-yr notes

    By Karen Brettell
    NEW YORK, Aug 27 (Reuters) - U.S. Treasuries rallied on
Wednesday as European government bond yields continued to plumb
record lows on expectations the European Central Bank will act
soon to counter low growth and slowing inflation.
    Bonds have gained since ECB President Mario Draghi said last
Friday the bank was prepared to respond with all available tools
if euro zone inflation drops further. Investors took this to
mean the ECB could start an asset purchase program or other
stimulus measures. 
    Further evidence of the region's faltering economy on
Wednesday fed market expectations for more stimulus.
Weaker-than-expected consumer confidence in Germany drove the
market, together with comments from Italy's economy minister
that Rome must lower its economic growth forecast. 
    "... Europe continues to rally, geopolitical concerns are
still out there and there is no data to speak of," said Ian
Lyngen, senior government bond strategist at CRT Capital in
Stamford, Connecticut.
    Benchmark 10-year notes were last up 8/32 in
price to yield 2.37 percent, down from 2.39 percent late on
    German 10-year yields dipped 2.6 basis points to 0.921
percent, passing the previous record of 0.926 percent hit on
    Tensions in Ukraine added some safety demand for U.S. debt.
    Ukraine accused Russian forces of launching a new military
incursion across its border on Wednesday, a day after the
leaders of both countries agreed to work toward ending a
separatist war in eastern Ukraine. 
    Demand from investors rebalancing their portfolios heading
into month-end is likely to hold a bid for bonds through the
rest of the week, with intermediate-dated notes likely seen as
    "Those month-end indexers are buying in the five-year and
seven-year bucket because the bonds outperformed so much over
the course of the last month," said Tom Tucci, head of
Treasuries trading at CIBC in New York. "Month-end on Friday is
a large extension. That will drive prices for the remainder of
the week."
    Foreign central banks and indirect bidders bought 52.71
percent of a $35 billion five-year note issue the U.S. Treasury
Department auctioned on Wednesday. That was their biggest
percentage purchase in 13 months, Treasury data showed.
    The Treasury will sell $29 billion in seven-year notes on
Thursday, the final sale in $93 billion of new coupon-bearing
supply this week.
    Gross domestic product data on Thursday will also be closely

 (Editing by Chizu Nomiyama and Jeffrey Benkoe)

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