April 5, 2012 / 3:27 PM / in 6 years

TREASURIES-US bonds gain as Europe fear spurs safety bid

By Karen Brettell	
    NEW YORK, April 5 (Reuters) - U.S. Treasuries prices gained
on Thursday as a flare-up in euro zone debt fears added a safety
bid and traders awaited key employment data on Friday that will
give a further indication of the strength of the U.S. economic
recovery.	
    Spain's bond yields rose on Thursday as investors worried
about the country's ability to meet budget targets, a day after
an auction of the country's debt saw weak demand.	
    The renewed jitters about Europe boosted demand for safety
assets including U.S. Treasuries.	
    "The whole European situation seems to be reheating itself
and there is more safe-haven type buying," said Sean Murphy, a
Treasuries trader at Societe Generale in New York.	
    Treasuries pared price gains after data showed the number of
Americans lining up for new jobless benefits fell to the lowest
in nearly four years last week. 	
    Investors are now focused on Friday's closely watched
payroll employment data, which is expected to show that U.S.
employers added 203,000 jobs in March.	
    Market reaction to payrolls data on Friday may be choppy as
trading volumes are expected to decline for the long Easter
holiday weekend. The U.S. bond market will open until noon on
Friday.	
    The potential for renewed stress from Europe is leaving some
investors hesitant to bet on significant yield increases in
Treasuries, even as U.S. data points to a moderate economic
recovery.	
    Bearish sentiment on Europe has returned in recent days as
economic data in the region has disappointed, raising fears the
17-country euro zone economy is in recession.	
    Investors may reduce exposure in stocks on signs of a
worsening situation in Europe after they made strong gains in
the first quarter, said Chris Ahrens, interest rate strategist
at UBS in Stamford, Connecticut.	
    Declining stocks appetite may boost demand for Treasuries,
which had the worst quarter in the first three months of the
year since the final quarter of 2010.	
    "The winds appear to have shifted a bit and I think that
they will be very quick to move to the sidelines and take some
profits and sit back to see how fundamental events play out,"
Ahrens said.	
    U.S. government bonds have now largely retraced a selloff on
Wednesday when investors were disappointed that minutes from a
U.S. Federal Reserve meeting did not give indications of further
monetary policy easing.	
    "Investors are maybe having a little rethink, and thinking
that the selloff might have been overdone," said SocGen's
Murphy.	
    Fed Chairman Ben Bernanke said last week that the modest
pace of U.S. growth was unlikely to cut unemployment quickly and
that further stimulus remains an option.	
    Benchmark 10-year Treasuries were last up 7/32
in price to yield 2.20 percent, down from 2.22 percent late on
Wednesday. Five-year notes increased 3/32 in price to
yield 1.02 percent, down from 1.04 percent.	
    Thirty-year bonds were up 9/32 in price to yield
3.34 percent, down from 3.36 percent late on Wednesday. 	
    The Treasury said on Friday it will sell $66 billion in
three-year, 10-year and 30-year debt next week.

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