August 28, 2014 / 1:25 PM / in 3 years

TREASURIES-Yields fall as Ukraine prompts safety buying, ECB seen buying bonds

* Treasury yields fall as German bond yields fall to record
    * Ukraine tensions add safety bid
    * Expectations ECB will buy bonds drives purchases
    * Thirty-year bond yields lowest since May 2013
    * Treasury to sell $29 bln 7-year notes

    By Karen Brettell
    NEW YORK, Aug 28 (Reuters) - U.S. Treasuries rallied on
Thursday and 30-year bond yields fell to their lowest in over a
year as concerns over tensions in Ukraine sparked safety buying,
and as European government yields continued to hit record lows.
    Ukraine accused Russia on Thursday of bringing troops into
the southeast of the country in support of pro-Moscow separatist
    Expectations that the European Central Bank is likely to
start a bond purchase program when it meets next week have also
driven a strong rally in German government debt, which in turn
has led Treasury yields lower.
    "It's all about Europe," said Ira Jersey, an interest rate
strategist at Credit Suisse in New York. "At the moment
Treasuries seem to be at the whim of bunds."
    Benchmark 10-year Treasuries were last up 7/32
in price to yield 2.33 percent, down from 2.36 percent late on
Wednesday. Thirty-year bonds gained 17/32 in price
to yield 3.07 percent, the lowest since May 2013 and down from
3.11 percent late on Wednesday.
    German 10-year government bond yields hit record
lows of 0.87 percent.
    Large demand from investors rebalancing portfolios this week
is also adding a bid to U.S. debt, traders said.
    Treasuries yields rose slightly and very briefly after data
showed that the U.S. economy rebounded more strongly than
initially thought in the second quarter.
    Gross domestic product expanded at a 4.2 percent annual rate
instead of the previously reported 4.0 percent pace, the
Commerce Department said, reflecting upward revisions to
business spending and exports. 
    The Treasury will sell $29 billion in seven-year notes on
Thursday, the final sale in $93 billion of new coupon-bearing
supply this week.

 (Editing by Chizu Nomiyama)
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