TREASURIES-U.S. bond prices gain on worries about global economy

Sat Aug 11, 2012 2:00am IST

* China's July exports grow less then expected
    * Yields on U.S. Treasury debt rise for the week
    * U.S. CPI, retail sales data expected next week

    By Chris Reese and Luciana Lopez
    NEW YORK, Aug 10 (Reuters) - U.S. Treasury debt prices rose
on Friday, recovering somewhat from losses earlier in the week,
as concerns about global growth spurred safe-haven buying and
investors looked ahead to U.S. inflation and retail sales data
next week.
    Investors also bought U.S. government debt after the
Treasury auctioned $72 billion of coupon-bearing securities in
its quarterly refunding this week.
    The economic worries were sparked by weaker-than-forecast
Chinese trade and other data.
    "It seems to be another risk-off type of move. The big
component was the weak data out of China, which exacerbated
fears of a global slowdown," said Kim Rupert, managing director
of global fixed income analysis at Action Economics in San
Francisco.
    China's exports grew 1.0 percent year-on-year in July, far
below market expectations of an 8.6 percent rise, while imports
grew 4.7 percent, against a 7.2 percent forecast.
 
    The benchmark 10-year U.S. Treasury note rose 11/32 in price
to yield 1.657 percent, down from 1.69 percent late Thursday.
    Thirty-year Treasury bonds were trading with a
yield of 2.746 percent, down from a high yield of 2.83 percent
in an auction of $16 billion of the bonds on Thursday.
    Next week investors will focus on reports on July U.S.
retail sales, expected to rise 0.3 percent, and consumer prices,
expected to gain 0.2 percent.
    "They generally should be fairly positive data," said Kevin
Cummins, an economist at UBS Securities in New York. "That
should add to some better tone of data that we've gotten
recently."
    But lingering questions remain about whether the U.S.
Federal Reserve could launch another round of quantitative
easing to prop up the sluggish economy, Cummins said. 
    Despite improved U.S. hiring last month, most Wall Street
economists still expect the Federal Reserve to do more to
stimulate growth this year, with the majority looking for action
as soon as September.      
    The Treasury's sales of 3-year, 10-year and 30-year
securities this week were met with tepid demand.
    "Treasuries have had a bit of a tough week, and you're
seeing a bit of a comeback here, giving buyers a bit of a
chance," Rupert said, adding that "the auctions are out of the
way and that is helping."
    Safe-haven interest also supported Treasuries on fears about
the debt crisis in Europe and worries that Spain and Italy may
require massive financial bailouts. Economists said even
stalwart Germany was stalling economically and could fall into
recession in the second half of this year. 
    Uncertainty over when the European Central Bank will resume
bond purchases and how effective this will be in lowering
Spanish and Italian yields, and easing the euro zone's debt
crisis, has underpinned safe-haven Treasuries.
    Despite higher prices on Friday, benchmark yields are up for
the week from 1.57 percent late last Friday, and have been
rising steadily since touching a record low of 1.38 percent on
July 25.
    "We think we can go a little bit higher from here in terms
of how high Treasury yields can go, but there is going to be a
cap because of everything happening in the world," said Scott
DiMaggio, director of global fixed income with AllianceBernstein
in New York.
    "Yields were driven to historical lows in the U.S., Germany,
the UK and several other countries, so the market got itself
very long," DiMaggio said, adding that comments from ECB
President Mario Draghi committing to take whatever measures
necessary to save the euro zone had undermined Treasury debt
prices and pushed yields higher in recent weeks.
    However, global economic uncertainty will likely mean yields
will remain at historic lows in coming months, DiMaggio said.
    "Treasuries are going to remain anchored," he said. "Can we
get to 1.75 percent? Can we get to 2 percent? Yes, probably, but
we think 2 percent would be a cap."
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