May 25, 2018 / 1:42 PM / a year ago

TREASURIES-Italy, Spain fears boost demand for U.S. bonds

* 10-year yields lowest since May 4

* Bond market closes early Friday, closed Monday

By Karen Brettell

NEW YORK, May 25 (Reuters) - U.S. Treasury yields fell to their lowest level in three weeks on Friday as concerns about Italy’s new government and a leadership challenge in Spain boosted demand for low-risk debt.

Italian Prime Minister-designate Giuseppe Conte began putting together his cabinet team on Thursday, with party leaders pushing for an 81-year eurosceptic economist to be given the pivotal post of economy minister.

Spain’s Prime Minister Mariano Rajoy was threatened with two separate no-confidence motions on Friday, after a graft trial involving members of his party in which a judge questioned the credibility of his testimony.

There is “continued unrest with some of the key core economies,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.

Geopolitical concerns have dominated in recent days as North Korea also said on Friday it was still open to talks with the United States after President Donald Trump called off a summit with leader Kim Jong Un, saying it hoped the “Trump formula” could resolve the standoff over its nuclear weapons program.

Technical factors, however, are a large part of the move, with benchmark 10-year note yields falling back from an almost seven-year high of 3.128 percent last week.

“The Treasury market has essentially pulled back from a solid attempt to reprice to a higher yield plateau,” Lyngen said.

The 10-year notes were last up 12/32 in price to yield 2.93 percent, down from 2.98 percent on Thursday.

Month-end demand was also seen as boosting bonds.

Data on Friday showed that new orders for key U.S.-made capital goods increased more than expected in April and shipments rebounded, suggesting business spending on equipment was picking up after slowing down at the end of the first quarter.

The bond market will close early on Friday at 2 p.m. EDT (1800 GMT) and close on Monday for the U.S. Memorial Day holiday. (Editing by David Gregorio)

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