July 23, 2012 / 3:15 PM / 7 years ago

CORRECTED-TREASURIES-Europe fears send US debt yields to new lows

(Corrects 3rd paragraph to clarify Murcia has not requested
    By Karen Brettell
    NEW YORK, July 23 (Reuters) - U.S. Treasuries yields fell to
new record lows on Monday as concern that the euro zone's debt
crisis is spiraling out of control led investors to seek out the
relative safety of U.S. debt.
    U.S. bond yields have fallen this month as economic growth
loses traction and as investors increase bets that the Federal
Reserve will launch new stimulus in a bid to reignite growth,
and encourage new lending.
     New fears over Europe's debt crisis on Monday sparked a
rush to safe haven bonds after Murcia looked set to become the
second Spanish region to seek help from the central government,
sending Spain's debt yields to record highs. 
    "The market is responding to the ongoing stresses in
Europe," said Chris Ahrens, interest rate strategist at UBS in
Stamford, Connecticut.
    The eastern Valencia region of Spain said on Friday it
needed help and media reported more regions are likely to do the
    A planned visit by Greece's troika of creditors on Tuesday
added to nervousness over the region, with many investors
continuing to fear a Greek exit from the euro zone, for which
markets are unprepared.
    Greece has slid further off course from its fiscal and
economic reform targets, and the man in charge of privatizing
state enterprises resigned last week in despair at delays. The
European Central Bank has also stopped accepting Athens' bonds
as collateral for lending to Greek banks. 
    With no news expected to show a resolution to the region's
woes, Treasuries are likely to remain well bid.
    "There's no imminent positive event that people can think
of," said Suvrat Prakash, an interest rate strategist at BNP
Paribas in New York.
    U.S. Treasuries have also benefited from a relative scarcity
of high-grade debt, as well as expectations that the Fed will
further support bonds through new debt purchases as the economy
    Data on Friday is also expected to show that U.S. gross
domestic product grew at disappointing pace of only 1.4 percent
in the second quarter, according to the median estimate of 60
economists polled by Reuters.
    "All the data in the last few weeks have pretty much
confirmed that the U.S. economy has slowed down after some
euphoria at the start of the year," said BNP's Prakash. "On
Friday this GDP number should confirm it."
    This sentiment is likely to aid the Treasury's sales of $99
billion in new two-year, five-year and seven-year debt this
week, starting with a $35 billion sale of two-year notes on
    Benchmark 10-year note yields have fallen a full
percentage point since March, when they traded as high as 2.40
percent. They traded as low as 1.3977 percent on Monday, 4 basis
points below the previous low of 1.44 percent first reached on
June 1.
    The notes were last up 9/32 in price to yield 1.43 percent.
    Thirty-year bond yields fell as low as 2.4766
percent, below its previous low of 2.51 percent also reached on
June 1. They were last up 1-3/32 in price to yield 2.50 percent.

 (Editing by Andrea Ricci)
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