December 8, 2014 / 2:32 PM / 3 years ago

TREASURIES-Bonds gain as global growth concerns trump US strength

* Yields fall from two-week highs on global growth fears
    * Five-year, 30-year yield curve flattest in six years
    * Three-year note yields at 3-mth highs before auction

    By Karen Brettell
    NEW YORK, Dec 8 (Reuters) - U.S. Treasuries were slightly
stronger on Monday, with benchmark 10-year yields falling from
two-week highs reached overnight, as concerns about slowing
global growth offset better economic momentum in the U.S.
    The curve between five-year note and 30-year bond yields
flattened to six-year lows as intermediate-dated notes weakened
on expectations the Federal Reserve may be closer to increasing
interest rates, while investors also sought out the higher
yields of long-dated debt.
    Yields have increased since data on Friday showed that U.S.
employers added the largest number of workers in nearly three
years in November and wage gains picked up. The report added to
speculation that the Federal Reserve may be closer to raising
interest rates from record lows, which most expect will happen
next year. 
    But U.S. bond weakness was capped by concerns over global
growth and disinflation. Brent crude fell to a five-year
low on Monday.
    "The market is struggling with the global growth story and
the U.S. story," said Gennadiy Goldberg, and interest rate
strategist at TD Securities in New York.
    Economic data showed China's exports rose at a slower than
expected pace and imports dropped 6.7 percent in November, while
Japan's economy shrank more than expected in the third quarter.
 
    Ewald Nowotny, a member of the European Central Bank's
Governing Council, said on Monday that the euro zone's economy
is weakening "massively" and that he expected inflation to fall
early next year. Printing fresh money to buy state bonds could
help to stop the slide, he added. 
    Benchmark 10-year notes were last up 1/32 in
price to yield 2.30 percent. The yields fell from a two-year
high of 2.35 percent in Asian trading.
    The yield spread between five-year notes and 30-year bonds
 flattened to 126 basis points, falling from 142
basis points seen last Monday. 
    "We're getting towards a rates hike, that's what is playing
out in the belly of the curve," said Goldberg.
    Higher yields on three-year notes may help the government
sell $25 billion in three-year notes on Tuesday, the first sale
of $59 billion in new debt this week.
    Three-year note yields have jumped to 1.08
percent, the highest since September 19, from 0.95 percent last
Thursday, before the jobs data. 
    The Treasury will also sell $21 billion in 10-year notes on
Wednesday and $13 billion in 30-year bonds on Thursday.

 (Editing by Chizu Nomiyama)

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