July 16, 2012 / 1:48 PM / 5 years ago

TREASURIES-Longer bond yields flirt with record lows

* 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
    * U.S. Fed to buy $1.5-$2.0 bln longer-dated bonds

    By Richard Leong
    NEW YORK, July 16 (Reuters) - U.S. government debt prices
rose on Monday, with longer-dated yields flirting with historic
lows, after data showing a surprise drop in domestic consumer
spending fed bets a faltering economy wou ld more nee d stimulus
from the Federal Reserve.
    Safe-haven demand for Treasuries was also supported by a
decision from Germany's high court to delay its ruling on
whether the euro zone's richest member can legally ratify
Europe's permanent bailout scheme and the pact for fiscal
    This drawn-out legal process fed 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.
    "There is no compelling story in the horizon that compels a
bear story on bonds," said Jim Vogel, interest rate strategist
at FTN Financial in Memphis, Tennesee.
    On unusually light trading volume, benchmark 10-year
Treasury notes were trading up 10/32 in price at
102-22/32 for a yield of 1.457 percent, down 3.4 basis points
from late on Friday.
    Earlier, the 10-year yield touched 1.449 percent, within
striking distance of the 1.442 percent which was the lowest
level going back to the early 1800s, according to data compiled
by Reuters.
    The 30-year bond last traded 1-2/32 higher at
109-26/32 with a yield of 2.529 percent, almost 5 basis points
lower than Friday's close.
    The 30-year yield set a session low of 2.524 percent, close
to a record low of 2.510 percent record on June 1. 
    Treasury yields could probe even lower as further economic
deterioration intensifies speculation the Fed will soon embark
on more bond purchases to stimulate the economy, analysts said.
    A number of Fed officials recently seem to have laid the
groundwork of more action from the U.S. central bank, although a
few of them cautioned a third round of quantitative easing,
nicknamed QE3,  would be less effective than the previous
    Traders will monitor Fed Chairman Ben Bernanke's testimonies
before two separate Congressional committees on Tuesday and
Wednesday. They will scour for signs on whether the Fed is
preparing for QE3 soon. 
    In the meantime, the Fed has been buying bonds in the open
market with its Operation Twist that involves selling its
short-term debt and buying longer-dated Treasuries.
    On Monday, the Fed is scheduled at 11 a.m. (1500 GMT) to buy
$1.5 billion to $2.0 billion in U.S. government debt that
matures in Aug 2022 to Feb 2031.

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