May 28, 2014 / 4:50 PM / in 4 years

TREASURIES-Yields tumble broadly; 10-year slides to near 11-month low

(Adds comment, updates prices)

* U.S. 30-year bond yields also fall, near 12-month lows

* German Bund yields down on the day, weigh on Treasury yields

* Focus on supply later in the session

* Month-end buying continues

By Gertrude Chavez-Dreyfuss

NEW YORK, May 28 (Reuters) - Yields on benchmark U.S. 10-year Treasury notes dropped to their lowest in nearly 11 months on Wednesday, undermined by falls in the German bond market following weak data and more month-end buying from institutional investors.

German 10-year Bund yields were down on Wednesday at 1.337 percent. Yields fell after an unexpected increase in German unemployment and a deceleration in the euro zone money supply. The data reinforced expectations that the European Central Bank will introduce further stimulus at next month’s meeting.

The rally in Bunds spilled over to U.S. Treasuries, which saw 10-year note yields tumble to their lowest since early July. U.S. 30-year bond yields also fell, to near 12-month lows.

Buying by institutional investors for month-end extensions has also boosted the market, especially as there were new U.S. 10-year note and 30-year bond issues this month.

“The month-end extensions are part of the Treasury rally and the word is it’s larger than usual,” said Jeffrey Young, interest rate strategist at Nomura Securities in New York. According to traders, the Barclays’ Treasury index is estimated to extend out 0.125 years, which is the highest since March 2011.

One fixed-income analyst said the normal extension is between 0.05-0.08 years.

In midday trading, prices on 30-year Treasury bonds were up more than a point to yield 3.299 percent, from 3.364 percent late Tuesday. U.S. 30-year yields hit a low of 3.291 percent, the lowest since around mid-June last year.

Benchmark 10-year U.S. Treasury notes were up 21/32 in price to yield 2.443 percent, from 2.518 percent on Tuesday. Yields touched a low of 2.439 percent, their weakest level since early July 2013.

Earlier in the session, German unemployment data, which posted its strongest monthly rise in over five years in May to 2.905 million jobless on a seasonally-adjusted basis. That caused a rally in Bunds that ultimately boosted U.S. Treasuries

The German data cemented expectations of more easing measures for the euro zone. ECB Executive Board member Yves Mersch said as much on Wednesday. He said an ECB meeting next week could yield a combination of policies to tackle low inflation and low credit growth, but the timing of the implementation could vary.

Supply is once again on the agenda on Wednesday, with the $35 billion in five-year notes and the $13 billion in two-year floating rate notes on the auction block. (Editing by Andrew Hay)

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