May 30, 2012 / 3:02 PM / 5 years ago

US Treasury 10-yr yield at historic low on Spain

* U.S. 10-year yield lowest in at least 60 years
    * U.S. 7-year yield touches record low
    * Longer-dated T-note futures hit contract highs
    * U.S. April pending home sales unexpectedly drop


    By Richard Leong	
    NEW YORK, May 30 (Reuters) - The benchmark U.S. Treasury
yield fell to its lowest level in at least 60 years on Wednesday
as worries of contagion from Spain's ailing banks raised bids
for low-risk investments.	
    On Wednesday, the European Commission advocated direct aid
from a euro zone rescue fund to recapitalize distressed banks in
an effort that could eventually help Spain. 	
    Spain's financial woes, rising Italian borrowing costs and
uncertainties over the Greek national election in June, sent
investors into cash, Treasuries and German Bunds from stocks and
other riskier assets.	
    "The European news is not getting any better," said Jeff
Given, portfolio manager at Manulife Asset Management in Boston,
adding that investors were feeling compelled to chase the rally
into longer-dated debt. "There are a lot of people who are short
duration. You have to (buy) 10-year and 30-year Treasuries."    	
    The latest investor push into longer-dated Treasuries sent
10-year yields to 1.642 percent, which is at least
a 60-year low based on monthly figures gathered by Reuters.	
    The yield on 30-year Treasury bonds last
traded at 2.74 percent after falling to 2.73 percent, the lowest
since October 2011, according to Tradeweb.	
    The heavy demand for perceived safehaven assets also
propelled longer-dated U.S. Treasury futures to contract highs
and seven-year cash note yield to record lows.  	
    U.S. and German government yields declined as the yield on
10-year Spanish sovereign debt rose to six-month
highs on concerns over how Spanish banks will obtain capital to
stay afloat. 	
    "The fundamental question is where the money is going to
come from to support the Spanish banks and on what terms," said
Jim Vogel, interest rate strategist with FTN Financial in
Memphis, Tennessee.	
    While Treasuries and German Bunds rallied on fears of a
worsening financial crisis in Europe, global stock markets
stumbled with the three major Wall Street indexes falling about
1 percent. 	
    On the data front, U.S. pending home sales unexpectedly fell
5.5 percent in April. Analysts had predicted a 0.1 percent
increase.

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