June 16, 2011 / 8:00 PM / 8 years ago

TREASURIES-Bonds gain on Greece worries, weak factory data

* Benchmark 10-year yield lowest since early December

* Greece debt worries fuel safety buying of U.S. debt

* Weak Philly Fed index supports bond prices (Adds analyst’s quotes, updates prices)

By Chris Reese

NEW YORK, June 16 (Reuters) - U.S. Treasury debt prices rose on Thursday and benchmark yields dipped to the lowest level this year as weak U.S. regional factory data and fears over the outcome of the Greek debt crisis stoked the safe-haven bid for bonds.

Uncertainty over how Greece will set a deal to meet its immediate funding needs, or even whether such a deal can be reached, along with mounting evidence the U.S. economic recovery is stumbling have pushed yields down since early April to the lowest since early December.

Benchmark 10-year notes traded 13/32 higher in price to yield 2.91 percent, down from 2.97 percent late on Wednesday. The yields briefly fell to 2.88 percent early in the day.

“It is more of the same flight-to-safety on Greece concerns and how the euro zone is dealing with it,” said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. “It is a big basket of fears and risk for the market.”

Bonds were also supported by a weaker-than-expected June reading on the Philadelphia Federal Reserve’s business activity index, which pointed to a contraction in manufacturing. For details see [ID:nN16172420].

“It goes in stride with most of the rest of the data that we have been seeing in recent weeks,” Rupert said. “The underlying current of softer data are adding to fears over the recovery.”

While some analysts believe the Treasuries rally may be running out of steam, few are ruling out the potential for lower yields in the near term.

“As you can see by yesterday or today, there is uncertainty out there, and if anything further goes wrong you would see a swift move into Treasuries and sharply lower yields,” Rupert said.

Timothy Horan, managing director, global investment solutions at Morgan Stanley Smith Barney, said bonds got a bid early in the session “on the back of the Greece headlines,” but had not moved beyond those levels since then.

“To change its range at this point, the bond market needs more confirmation that the economy is substantially weaker or of the likelihood of a double-dip,” he said.

Two-year Treasury notes US2YT=RR traded unchanged in price to yield 0.39 percent, while 30-year bonds US30YT=RR traded 17/32 higher in price to yield 4.17 percent, down from 4.20 percent late on Wednesday.

Treasuries trade volume was above average across the curve on Thursday, according to data from Tradeweb. (Additional reporting by Ellen Freilich; Editing by Leslie Adler)

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