April 16, 2012 / 2:35 PM / 8 years ago

TREASURIES-Bonds rally,10-yr yield below 2 pct on Spain worry

* Spain worries enhance safety bid
    * Euro zone worry outweighs impact of strong U.S. retail

    By Ellen Freilich	
    NEW YORK, April 16 (Reuters) - U.S. Treasuries rose on
Monday despite a stronger-than-forecast retail sales report as
worries about the euro zone fed demand for safe-haven U.S.
government debt.	
    Yields on the benchmark 10-year note remained below the
psychologically important level of 2 percent as concerns about
the euro zone, with Spain's finances in focus, sent the yield
down to 1.95 percent with prices up 10/32 on the day.	
    Stocks were mixed, adding to investors' willingness to
invest in safe-haven U.S. Treasuries.	
    Market participants have become more concerned about a
summer slowdown similar to what the economy experienced in each
of the last two years, said Joseph LaVorgna, managing director
and chief U.S. economist at Deutsche Bank Securities.	
    However, Monday's retail sales data had little impact on
bond market participants' perceptions of Federal Reserve policy.	
    Fed officials have suggested the economy would have to
deteriorate for the central bank to consider additional
stimulus.. The Fed's policy setting Federal Open
market Committee meets in April, but economists who predict
extra monetary stimulus say any move is unlikely before June.	
    March U.S. retail sales data did not support a case for
deteriorating growth. They rose 0.8 percent, more than expected
in March, as Americans took high gasoline prices in stride and
bought a range of goods, suggesting the economy's growth in the
first quarter did not slow as much as many had feared.	
    But analysts said the market was focused on the euro zone.	
    Spanish 10-year yields rose above 6 percent on Monday as
concerns over the country's finances risked sparking another
flare-up in the euro zone debt crisis. The yield reached 6
percent last week for the first time in four months. 	
    Appetite for the country's debt will be tested on Thursday
when Spain issues bonds in the primary market. 	
    Market confidence in Spain has been dented following a 2.5
percentage point of GDP revision to the 2011 fiscal deficit and
a delayed publication of the 2012 budget. 	
    Solvency concerns about Spain are based on the grounds of
fiscal consolidation, incomplete bank recapitalisation and
consolidation, and the need for tighter regional spending. 	
    But spending cuts would come at a time when Spain has an
overall unemployment rate of 23.6 percent and a youth 
unemployment rate over 50 percent. 	
    Unless robust U.S. economic data presents a challenge,
10-year U.S. Treasury yields could remain near or below 2
percent on euro zone concerns. Those concerns argue for an
extended period of monetary ease and further steps along that
course, a bullish path for bonds.	
    Two-year U.S. government bond yields were 
unchanged at 0.27 percent, while the thirty-year bond rose
18/32, its yield easing to 3.10 percent.
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