TREASURIES-Late sell-off cools hot market before supply

* Bonds slip in late sell-off as Wall Street trims losses

* 10-yr yield at fresh 17-month low, 30-yr at 16-month low

* 2-year yield touches new record low of 0.46 pct

* Low yields make curb bidding at next week’s auctions
(Updates market action, adds details)

By Richard Leong

NEW YORK, Aug 20 (BestGrowthStock) – U.S. Treasuries retreated on
Friday, as a late sell-off cooled a market run-up that pushed
two-year yields to record lows and longer-dated yields to their
lowest in nearly 1-1/2 years.

In the absence of major data, investors were reluctant to
amass more bonds ahead of next week’s $109 billion supply of
coupon-bearing debt, analysts said.

Bonds also took their cue from Wall Street, which was
beaten down much of the day on economic worries before
retracing the decline in a late burst of buying, traders said.

This week’s surge in bond prices, led by the 30-year, was
not sustainable even in the face of investor angst over growing
signs of a faltering U.S. economic recovery, analysts said.

“The bond market is overreacting a little bit on deflation
and double-dip (recession) fears at this point,” said Perry
Piazza, director of investment strategies at Contango Capital
Advisors in San Francisco.

The scramble for long-dated Treasuries from a cross-section
of investors — pensions, insurers, hedge funds, mortgage
companies — came despite various statistical measures that
have signaled Treasuries are too expensive.

This intense demand took the 30-year yield (US30YT=RR: ) to
3.60 percent, the lowest in 16 months, and the 10-year yield
(US10YT=RR: ) to 2.53 percent, the lowest in 17 months.

The Sept T-bond futures (USU0: ) hit a contract high at
135-7/32, while the Sept ultra bond contract (AULU0: ) set a
contract peak at 144-13/32.

The three major U.S. indexes (.DJI: ) (.SPX: ) (.IXIC: ) were
flat to lower in late trading, above their earlier lows. [.N]

TOPPY MARKET

Fears of a fizzling economic recovery spurred a stampede
into bonds this week. Investor preference for long-dated issues
was underpinned by the Federal Reserve’s pledge to keep
short-term interest rates near zero and a lack of any hint of
inflation.

The 30-year bond yield recorded its biggest one-week drop
in about three months. Since the start of August, it has fallen
some 40 basis points.

The two-year yield (US2YT=RR: ) ended at 0.50 percent after
setting a record low of 0.46 percent earlier.

The breadth of this week’s rally surprised even those
investors who have been bullish on bonds. This led some of them
like Contango’s Piazza to scale back their bullish bets on
long-dated debt and to reinvest the money into short-dated
Treasuries and high-quality, dividend-paying stocks.

Some traders cautioned the ultra low yields, which make
bonds expensive, could curb bidding at next week’s Treasury
auctions.

The Treasury Department will kick off next week’s sales
with a $7 billion reopening on an existing 30-year inflation
bond issue (US30YTIP=TWEB: ).

“It’s hard to think people would bid aggressively for them
in this climate,” said Russ Certo, managing director at
Gleacher & Co. in Stamford, Connecticut.

(Reporting by Richard Leong, Editing by Chizu Nomiyama)

TREASURIES-Late sell-off cools hot market before supply