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TREASURIES-Bond yields match record lows as data spurs bets on Fed
July 16, 2012 / 7:24 PM / 5 years ago

TREASURIES-Bond yields match record lows as data spurs bets on Fed

* U.S. retail sales post surprise drop in June
    * Nagging worries about Europe feed safety bids
    * Eyes on Fed's Bernanke for clues on QE3
    * Five-year yield hits record low at 0.58 pct
    * U.S. Fed buys $1.84 bln in longer-dated bonds


    By Karen Brettell
    NEW YORK, July 16 (Reuters) - U.S. 10-year bond yields fell
to match historic lows on Monday after a surprise drop in retail
sales provided the latest evidence of a slowing economy,
bolstering bets of new stimulus measures from the Federal
Reserve.
    While the rock-bottom yields are not enticing, most
investors remain too nervous about the global economy and
financial contagion from Europe to take much risk, analysts and
traders said.
    "Treasuries at these low yields are not great trades. People
are just being forced into them," said Brian Edmonds, head of
interest rates at Cantor Fitzgerald in New York.
    The Commerce Department reported that U.S. retail sales fell
by 0.5 percent in June, marking a third straight month of
decline. Economists had expected a 0.2 percent rise.
 
    "Today was certainly a disappointment," said Chris Ahrens,
interest rate strategist at UBS in Stamford, Connecticut.
    Yields on U.S. Treasuries were broadly lower, albeit on
unusually light trading volume.
    Benchmark 10-year Treasury notes last traded up
8/32 in price for a yield of 1.47 percent, down from 1.49
percent late on Friday.
    Earlier, the yield touched 1.442 percent, matching the level
set on June 1, which was the lowest level dating back to the
early 1800s, according to data compiled by Reuters.
    Traders will next be focusing on semiannual testimony from
Federal Reserve Chairman Ben Bernanke before two separate
Congressional committees on Tuesday and Wednesday.
    "I wouldn't think that we're going to get any policy
announcement, but we're going to get some insight into the
thinking of the committee and the board at large," said Ahrens. 
"It's critical to think about where they stand and how the hawks
feel in light of the recent data."
    A number of Fed officials recently seem to have laid the
ground work for more action from the U.S. central bank to
kick-start the slowing economy, although a few have cautioned
that a third round of quantitative easing, known as QE3, would
be less effective than the previous rounds.
    "Bernanke's testimony will be important for clues about QE3.
The Fed is not going to sit idly by," Cantor's Edmonds said.
    In the meantime, the Fed has been buying bonds in the open
market with its Operation Twist program, which involves selling
short-term debt and buying longer-dated Treasuries.
    On Monday, the Fed bought $1.84 billion in U.S. government
debt that matures in August 2022 to February 2031.
 
    Safe-haven demand for Treasuries was also supported by a
decision from Germany's high court to delay its ruling on
whether Germany, the euro zone's richest member, can legally
ratify Europe's permanent bailout scheme and the pact for fiscal
discipline. 
    This drawn-out legal process added to worries about European
leaders' ability to manage their debt crisis, as borrowing costs
for Spain, Italy and other struggling members of the euro bloc
hover at unsustainable levels.
    The 30-year bond last traded up 17/32 in price
with a yield of 2.55 percent, down from 2.58 percent at Friday's
close.
    The 30-year yield touched a session low of 2.520 percent,
within striking distance of a record low of 2.510 percent set on
June 1.
    Among other maturities, the five-year yield hit a
record low of 0.5786 percent, while the two-year yield
 fell to 0.2219 percent, matching its lowest level
since Feb. 1, according to Reuters data.

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