August 25, 2014 / 1:26 PM / 3 years ago

TREASURIES-Yields drop as hopes for more ECB stimulus boosts demand

* Yields fall as European bonds rally
    * Draghi remarks stir hopes of further ECB stimulus
    * Treasury to sell $93 bln in 2-, 5-, 7-year notes

    By Karen Brettell
    NEW YORK, Aug 25 (Reuters) - U.S. Treasuries yields dipped
on Monday in light trading, as European bonds rallied on
expectations the European Central Bank will use more stimulus to
revive flagging growth in the region.
    ECB President Mario Draghi said 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, which would
boost assets like stocks and bonds. 
    Draghi's comments caused yields on most euro zone government
bonds to fall to record lows, with Treasuries also benefiting
from the rally.
    "Part of it is the rally in European rates. Generally
markets are pricing for a higher chance of the ECB being more
accommodative going forward," said Michael Chang, an interest
rate strategist at Credit Suisse in New York.
    Benchmark 10-year notes were last up 3/32 in
price to yield 2.40 percent, down from 2.41 percent late on
    Trading was modest ahead of the U.S. Labor Day holiday on
Sept. 1, with traders in Britain out for a bank holiday on
    New supply is likely to be the major focus this week, with
gross domestic product data on Thursday also anticipated.
    The Treasury will sell $93 billion in new coupon-bearing
debt this week, including $29 billion in two-year notes on
Tuesday, $35 billion in five-year notes on Wednesday and $29
billion in seven-year notes on Thursday.
    It will also sell $13 billion in two-year floating rate
notes on Wednesday.

 (Editing by Bernadette Baum)

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