* Investors see bias toward lower yields on geopolitics
* Fourth-quarter U.S. GDP revised lower
* Fed buys $7.24 billion of Treasuries (Adds buyside comments, updates prices)
By Chris Reese
NEW YORK, Feb 25 U.S. Treasury debt prices rose on Friday as turmoil in the Middle East and North Africa and worries over the economic impact of high oil prices maintained the safe-haven appeal of government debt.
A downwardly revised government estimate of fourth-quarter U.S. growth caused prices to pare losses. The estimate was the second of three the government will make of growth in the quarter.
The recent flight-to-quality of Treasuries, due to worries that soaring oil prices could slow any economic recovery, has pushed benchmark Treasury debt yields below 3.56 percent, a level that once marked technical price resistance but has now become price support.
"Given the current geopolitical environment, we see little reason to try to stand in the way of the flight-to-quality freight train on Friday and/or over the weekend, especially as we have recently broken through strong technical resistance levels in the recent flight-to-quality rally," said George Goncalves, head of U.S. interest rates strategy at Nomura Securities International in New York.
Benchmark 10-year Treasury notes US10YT=RR on Friday were trading 5/32 higher in price to yield 3.44 percent, down from 3.45 percent late Thursday. Benchmark notes were on track for the biggest weekly dip in yield since May 2010, when investors also were moving into lower-risk assets on a diminished growth outlook and worries about Europe's banking system.
The focus remained on how events in the Middle East and North Africa might play out, and what impact oil prices near $100 per barrel might have on economic growth in the second half of the year.
"Based on the GDP data and recent events in the Mideast, we would conclude that many Wall Street firms will certainly be shifting their view on the Fed and the outlook for the economy in the second half," said Tom di Galoma, head of fixed income rates trading at Guggenheim Securities in New York.
"We are of the view that cuts in government spending at the federal and state levels will put severe pressure on the U.S. economy enabling GDP to fall towards the 1 percent level in the fourth quarter. The recent oil shock will also be a huge drag on economic output and will constrain capacity in a very negative way especially after QE2 concludes in June," he said.
While safe-haven buying has bolstered Treasuries prices this week, momentum should return to higher yields later this year, said Jeff Hussey, chief investment officer at Russell Investments in Seattle. Russell had about $155 billion in assets under management as of the end of 2010.
"The unrest is of concern and it has created a pretty significant flight-to-quality, but our central view remains the same -- that even with a lot of people calling for higher oil prices, rates will be higher by year-end, somewhere in the 3.75 percent to 4.00 percent range on the 10-year," he said.
"We recognize that higher oil prices will have an impact on the economy, but I'm not sure it makes Treasuries a screaming buy in this environment because of the other forces at work," Russell said.
The government on Friday said fourth-quarter gross domestic product grew at an annualized rate of 2.8 percent, marking a downward revision from its initial 3.2 percent estimate. For details see [ID:nN25247775].
Treasury debt prices were also supported on Friday by at least one big buyer -- the Federal Reserve. The U.S. central bank bought $7.24 billion of Treasuries maturing May 2018 through February 2021 as part of an effort to support the economic recovery, dubbed "QE2." (Editing by Kenneth Barry)
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