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TREASURIES-Prices dip as investors tentatively take on more risk
July 25, 2012 / 6:31 PM / 5 years ago

TREASURIES-Prices dip as investors tentatively take on more risk

 (Adds trader's quotes, updates prices)
 * Yields hover just above Tuesday's record lows
 * U.S. new home sales data disappoints
 * Five-year note auction has record low yield
 By Chris Reese
 NEW YORK, July 25 (Reuters) - U.S. Treasury debt prices
eased on Wednesday as expectations central banks will have to
move further to stem slowing economic growth spurred some
tentative buying of riskier assets, at the cost of lower-risk
U.S. government debt.
 Yields remained very near record lows however, and price
losses were limited by data showing weak new housing starts last
month, and by investor efforts to push for price concessions as
the Treasury auctions $99 billion of new debt this week.
 Treasury yields have been pushed down by the global growth
concerns, and by worries Spain will need a massive financial
bailout on top of a bank rescue plan already in place, and that
Greece's debt woes could eventually force the country's exit
from the euro zone.
 Yields on Spanish and Italian debt retreated modestly on
Wednesday from the record highs hit on Tuesday, and U.S. stocks
traded higher. 
 "We continue to be following what Spain and Italy are doing
and what equities are doing and you are seeing a little bit of a
risk-on move today, with those (Spanish and Italian) rates
coming off their recent highs and equities up a bit," said Rick
Klingman, managing director of Treasury trading at BNP Paribas
in New York.
 Benchmark 10-year Treasury notes were trading
6/32 lower in price to yield 1.41 percent, up from a record low
of 1.39 percent reached on Tuesday. 
 Increasingly disappointing economic data globally has raised
bets on more central bank actions around the world.
 In the United States, investors are watching for signs of
further stimulus from the Federal Reserve. Fed officials have
already started to think about new tools they can use beyond a
possible third round of quantitative easing to spur growth.
 
 Separately, data showed new U.S. home sales in June fell by
the most in more than a year, suggesting a setback for the
budding housing market recovery. 
 Some investors expect a relative lack of safe-haven assets
and the ongoing problems in Europe to keep solid demand for
Treasuries, even as yields hit record lows.
 "There's a general absence of risk-free assets in the world
and there is huge demand for risk-free assets in uncertain
times, so we continue to see regular demand for Treasuries,"
said Robert Bayston, a portfolio manager at Standish Mellon in
Boston.
 That said, the low returns and the risk, even if unlikely,
that yields could back up again quickly is keeping some
investors on the sidelines.
 "We're not inclined to add a lot of Treasury exposure at
these levels," Bayston said. "We think Treasury valuations are
stretched, but clearly they can maintain that for quite some
time."
 Investors were pushing for some concessions from the lofty
price levels amid Treasury auctions this week. A total of $35
billion of five-year notes were sold at a record low yield on
Wednesday, following on a record low yield in the sale of $35
billion of two-year notes on Tuesday.
 The Treasury will sell $29 billion of seven-year notes on
Thursday.
 Meanwhile, Treasuries also were hurt by weakness in German
bunds, which have been worsening since Moody's Investors Service
on Monday changed its outlook for Germany, the Netherlands and
Luxembourg to negative from stable.
 The rating action added to concerns the countries will face
higher costs from bailing out struggling countries in the euro
zone, like Greece.
 U.S. bonds typically fall in concert with German government
debt, though in recent weeks Treasuries have benefited from an
outflow from even the safest euro zone countries.

 (Additional reporting by Karen Brettell; Editing by James
Dalgleish)
 
 

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