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TREASURIES-Yields fall on month-end buying, European bond rally
August 27, 2014 / 7:46 PM / 3 years ago

TREASURIES-Yields fall on month-end buying, European bond rally

(Adds details on 30-year bonds, adds quotes, updates prices)
    * Ukraine tensions, month-end buying adds to bid
    * Treasury sell $35 bln five-year notes to strong demand
    * Thirty-year bond yields lowest since May 2013
    * Month-end buying supports long bonds, intermediate 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 and month-end buying helped send 30-year Treasury
yields to their lowest levels in over a year.
    Bonds have gained since European Central Bank President
Mario Draghi said last Friday that the bank was prepared to
respond with all available tools if euro zone inflation dropped
further. Investors took his comments to mean the ECB could start
an asset purchase program or other stimulus measures.
 
    Large demand from investors rebalancing portfolios this week
is also adding a persistent bid to U.S. debt.
    "There is a fairly fierce rally in the European sector which
is dragging U.S. yields along with it and month-end buying is
ferocious this month because it's a refunding month," said Aaron
Kohli, an interest rate strategist at BNP Paribas in New York.
    Benchmark 10-year notes were last up 9/32 in
price to yield 2.37 percent, down from 2.39 percent late on
Tuesday.
    German 10-year yields dipped 2.6 basis points to 0.921
percent, passing the previous record of 0.926 percent hit on
Monday. 
    U.S. 30-year bonds gained a full point in price
to yield 3.10 percent, the lowest level since May 2013.
    Intermediate-dated notes are also benefiting from month-end
buying this week.
    "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.
    Tensions in Ukraine also 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. 
    U.S. gross domestic product data on Thursday will also be
closely watched by markets.

 (Editing by Chizu Nomiyama, Jeffrey Benkoe and Paul Simao)

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