June 29, 2010 / 3:05 PM / in 8 years

TREASURIES-2-year note yields hit record low in risk aversion

* Safe-haven buying pushes 2-year yields to record lows

* Treasury yield curve the flattest since October

* June U.S. employment data looms (Adds economist’s quote and consumer confidence data)

By Chris Reese

NEW YORK, June 29 (Reuters) - U.S. Treasuries rose on Tuesday, pushing two-year note yields to the lowest on record, as stocks tumbled globally on worries over euro-zone debt problems and the potential for a U.S. double-dip recession.

Benchmark 10-year Treasury note yields fell below three percent for the first time in 14 months, and three-month euro Libor, or the price that European banks charge each other for short-term loans, rose to an 8-month high. For details see [ID:nEAP000048].

The move flattened the Treasury curve, with the spread between yields on two-year notes and 10-year notes narrowing to 235 basis points, the slimmest margin between those rates since October, 2009.

“Treasuries are higher and the curve is flatter this morning as global stock markets crater on fears of sweeping developed world fiscal austerity,” said William O‘Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut.

Benchmark 10-year notes US10YT=RR were trading 18/32 higher in price to yield 2.96 percent, the lowest since April, 2009 and down from 3.03 percent late on Monday.

O‘Donnell said the Treasury curve on Monday broke a steepening trend that had been in place for over three years, and that longer-dated yields were now set to fall further.

“Yesterday was Breakout Monday as major resistance levels in Treasuries were finally broken and closed through -- the door is now wide open for a bull flattening move that will take 10 year yields to 2.75 percent, at least,” he said.

Two-year Treasury notes US2YT=RR were trading 1/32 higher in price to yield 0.61 percent, down from 0.63 percent late on Monday. Yields tumbled to as low as 0.59 percent early in the day, the lowest on record.

U.S. Treasury debt prices extended gains on Tuesday morning after data from The Conference Board showed consumer confidence dipped by more than forecast in June, sparking worries about the future for consumer spending.

The Board said its index of consumer attitudes fell to 52.9 this month from a downwardly revised 62.7 in May. The median of forecasts from analysts polled by Reuters had been for a June reading of 62.8. [ID:nN29138077]

“It’s more of a general perception of the turmoil in the markets,” said Jim O‘Sullivan, chief economist at MF Global in New York.

Treasuries were little impacted by data showing home prices unexpectedly rose in April. Standard & Poor‘s/Case Shiller said their home price index for April rose 0.4 percent on a seasonally adjusted basis from a downwardly revised 0.2 percent drop in March. Analysts polled by Reuters had forecast a 0.1 percent decline.

Investors are turning to lower-risk U.S. debt as they wait with some trepidation the release on Friday of the government’s June non-farm payrolls and unemployment data.

The May employment data released early this month kicked off a string of weaker-than-expected U.S. numbers, including homes and retail sales, that reignited worries the world’s largest economy may be spiraling back into recession.

U.S. Treasuries had already been tracking higher since early April, on fears a sovereign debt crisis in Europe might spread to throw the globe back into a credit crunch similar to that of 2008. Those fears have not entirely gone away, despite a massive European Union aid package to help out struggling countries like Greece.

“Treasuries are benefiting from all the turmoil,” said Thomas di Galoma, head of fixed-income rates trading at Guggenheim Securities in New York.

The 30-year bond US30YT=RR also hit a bit of milestone, with yields dipping below 4.00 percent to 3.95 percent, the lowest since October, 2009. In the latest trade, bonds were up 24/32 in price to yield 3.96 percent, down from 4.01 percent late on Monday. (Additional reporting by Richard Leong; Editing by Andrea Ricci)

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