April 11, 2014 / 2:54 PM / 4 years ago

TREASURIES-U.S. bond prices gain as stock market drop spurs safety bid

* U.S. 30-year yield falls to lowest since July

* Domestic producer prices post biggest rise in 10 months

* U.S. consumer sentiment strongest in nine months

* Short-, medium-dated debt set for best week since Sept (Updates trading after ThomsonReuters/UMich data)

By Richard Leong

NEW YORK, April 11 (Reuters) - U.S. Treasuries prices rose on Friday as nervous investors pulled out of stock markets worldwide and piled into less risky government debt, sending the U.S. 30-year bond yield to its lowest level since July.

The sell-off in global equities persisted in the wake of disappointing quarterly results from JPMorgan Chase & Co. , the biggest U.S. bank. This exerted more pressure on the Standard & Poor’s 500 index that suffered its biggest one-day drop in two months a day earlier.

“This equity market meltdown has brought a ‘fear’ bid into bonds,” said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

Benchmark 10-year Treasuries notes last traded 4/32 higher in price for a yield of 2.614 percent, down 1 basis point from late on Thursday.

The 30-year bond was up 12/32 in price, yielding 3.483 percent, down 2 basis points from Thursday. The 30-year yield earlier fell to its lowest intraday level since early July, bringing its year-to-date decline to 46 basis points, according to Reuters data.

Short-to-medium Treasuries firmed modestly in price with their yields flat to down 1.7 basis points.

The U.S. bond market rallied this week on renewed safe-haven bids as well as relief buying in reaction to the minutes of the Federal Reserve’s March 18-19 policy meeting.

The intense appetite for bonds spread into this week’s auction of $64 billion worth of coupon-bearing debt, which raised $13.5 billion in new cash for the federal government.

The FOMC minutes suggested most policy-makers wanted to stick to a near-zero rate policy they adopted in December 2008 until the U.S. economy creates more jobs and an inflation rate that achieves its 2 percent target.

After the Fed released its summary of economic projections on March 19 and before the release of the latest Fed minutes, some traders had worried the Fed might raise rates earlier and at a faster pace than expected.

Compounding this perceived hawkish view were remarks by Fed Chair Janet Yellen at a press conference after the March policy meeting, when she said the Fed might increase rates a “considerable time” after it completed its bond-purchase program, a period she defined as “around six months.”

The FOMC minutes, together with news of a mildly below-forecast 192,000 payroll increase in March a week ago, have sparked a rally in short- and medium-dated Treasuries, putting them on track for their best week since September.

“There could be more room for bonds to rally if equities continue this washout,” Milstein said.

Friday’s stronger-than-expected data on domestic producer prices and consumer sentiment capped the bond market’s gains, challenging a view that domestic inflation will remain tame for a long time.

The Labor Department said its index of producer prices rose 0.5 percent last month for its biggest rise since June. Analysts polled by Reuters had forecast a 0.1 percent increase.

The index’s core reading, which excludes volatile food and energy prices, posted a 0.6 percent increase in March for its biggest monthly gain in three years.

The Thomson Reuters/University of Michigan’s preliminary April reading on the overall index of consumer sentiment came in at 82.6, the highest since July, compared with a final reading of 80.0 in March.

“Now that the weather is improving, economic growth is poised to regain lost momentum and we expect that consumer moods will continue to improve as a result,” Thomas Simons, money market strategist with Jefferies & Co. wrote in a research note.

Meanwhile, the Fed was scheduled to buy $2.0 billion to $2.5 billion in government debt due in 2021 to 2024 at 11:00 a.m. EDT (1500 GMT), which is part of its planned $30 billion purchases of Treasuries in April for its third round of quantitative easing. (Reporting by Richard Leong; Editing by James Dalgleish and Bernadette Baum)

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