February 14, 2013 / 9:26 PM / in 5 years

TREASURIES-Yields slip from 10-month highs on Europe growth fears

* Prices gain as weak European data spurs buying
    * Bonds briefly pare price gains as U.S. jobless claims fall
    * Treasury sells $16 billion in new 30-year bonds
    * Fed buys $5.15 billion in debt due 2017-2018

    By Karen Brettell and Luciana Lopez
    NEW YORK, Feb 14 (Reuters) - U.S. Treasuries yields slid
from 10-month highs on Thursday after disappointing growth data
from the euro zone spooked investors into pouring money into
perceived safe havens.
    The German economy shrank 0.6 percent in the final quarter
of 2012, the worst performance since 2009, while France's shrank
0.3 percent, slightly worse than forecast. 
    "Even though the consensus was that it was going to be a
contraction, it was worse than expected," said Steve Van Order,
fixed income strategist with Calvert Investments.
    The news boosted lower-risk assets such as the U.S. dollar
and U.S. government debt, helping benchmark 10-year note yields
fall from 10-month highs of 2.06 percent reached in overnight
trading.
    Treasuries added further to gains after the government sold
$16 billion of 30-year bonds at a high yield of 3.180 percent.
 
    "We expected a solid to strong auction to wrap up the
refinancing," Nomura analysts wrote in a note to clients. "It
came to fruition and according to our grading system, the A-
grade represents an auction that is almost as strong as it
gets."
    Ten-year notes were last up 18/32 in price to
yield 1.997 percent.
    Thirty-year bonds rose more than a point before
paring gains to trade up 1-03/32, yielding 3.174 percent. 
    The 10-year notes have been pushing up against technical
support at around 2.03 to 2.06 percent, the top end of their
trading range for the past few weeks. A break above this could
send yields up towards the 2.20 percent area, analysts and
traders said.
    Some investors see Treasuries yields as likely to ease after
this week's $72 billion in supply is absorbed, with automatic
budget cuts, scheduled to come into effect on March 1, likely to
come under increasing focus. 
    The cuts, if implemented, are expected to reduce economic
growth, which could send rates back lower.
    At the same time, calmer European debt markets, still steady
economic improvement in the United States and questions over
when the Federal Reserve will end its ongoing bond purchase
program, known as quantitative easing, are leading others to
price for an uptick in yields this year.
    "There's kind of a tug of war between people that feel that
the sequester cuts coupled with higher taxes and the headwinds
of global growth are going to slow down growth enough so that
Treasuries will remain at a fairly low level," said John Fath,
managing partner at BTG Pactual in New York.
    "Others feel that at some point, there is a cost to QE and
that at some point the Fed is going to realize that those costs
are overwhelming the benefits," he added.
    The Federal Reserve bought $5.15 billion in debt due 2017 to
2018 on Thursday as part of its quantitative easing effort, the
last purchase scheduled for this week.
    The Treasury also said it will sell $9 billion in 30-year
Treasury Inflation-Protected Securities (TIPS) next Thursday.

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