August 13, 2014 / 7:31 PM / 3 years ago

TREASURIES-Bond yields fall on weak data, 10-year auction solid

* Safe-haven bids persist on tension in Gaza, Iraq and
    * U.S. retail sales flat in July, miss forecast of modest
    * U.S. sells 10-year supply at lowest yield since June 2013

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Aug 13 (Reuters) - U.S. Treasury debt yields fell
on Wednesday as disappointing data on U.S. retail sales revived
bets the Federal Reserve might leave interest rates near zero
for a longer period in a bid to keep the economic recovery on
    The decline in bond yields was limited by worries about
demand for this week's longer-dated supply. Wednesday's $24
billion in 10-year notes was met with solid demand. The U.S.
Treasury will sell $16 billion of 30-year bonds on Thursday.
    "The knee-jerk reaction to the retail sales data was
disappointment. You see bonds rallying a bit," said Craig
Dismuke, chief economic strategist at Vining Sparks in Memphis,
    In afternoon U.S. trading, medium-dated Treasuries yields
fell the most on the day on views the Fed's boosting interest
rates might not occur until the latter part of 2015.
    Five-year yields fell 3.4 basis points to 1.581
percent, while the yield on benchmark 10-year Treasuries
 was 2.417 percent, down 2.5 basis points.     
    Bond yields were higher overnight on overseas selling before
news that American spending at stores and gasoline stations did
not grow in July. Economists polled by Reuters had projected a
0.2 percent gain. 
    The selling pressure from this week's $67 billion in
coupon-bearing government bond supply has been offset by a
steady bid for safe-haven Treasuries on worries about conflicts
in Iraq, eastern Ukraine and Gaza. Ten-year yields have not
strayed far above last week's 14-month low of 2.349 percent.
    The latest 10-year note issue due August 2024 was sold at a
yield of 2.439 percent, the lowest since June 2013.
    "There's a lot of foreign demand for safe-haven
(investments) and domestic demand due to geopolitical concerns,"
said Gene Tannuzzo, portfolio manager with Columbia Management
in Minneapolis.
    In addition to government supply, investors have bought
$14.1 billion in new investment-grade corporate bonds in the
past two days, which was the bulk of the $15 billion to $20
billion in supply in that sector expected this week, according
to IFR, a unit of Thomson Reuters. 
    As traders prepared for the rest of this week's bond supply,
they have kept an eye on developments abroad and whether
conditions might worsen and become a drag on the global economy.
    Ukraine denounced Russia's aid convoy heading for its
eastern border, a move Kiev and the West see as a pretext for an
invasion of the region. 
    Meanwhile, Israelis and Palestinians have not reached a deal
to end a month-long war in Gaza as a three-day ceasefire comes
to a close. 
    The Federal Reserve bought $423 million in Treasury
Inflation-Protected Securities, the latest transaction in its
bond purchase program that is expected to wind down in October.

 (Reporting by Richard Leong; Editing by James Dalgleish and Dan

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