TREASURIES-Prices extend rise as safety bid buoys bonds

* Fear that European growth jeopardized aids Treasuries

* Fresh equity weakness supports safety bid

* Empire State manufacturing index weaker than forecast

* Stronger US economy pushed yields up slightly last week

By Ellen Freilich

NEW YORK, May 17 (BestGrowthStock) – U.S. government bonds edged
higher on Monday, after a brief nod toward profit-taking, as
worries that the euro zone’s debt crisis would jeopardize
growth on that continent encouraged investors to hold on to
safe-haven Treasuries.

The modest buying followed Friday’s rally which occurred
despite a solid rise in April U.S. retail sales as investors
focused instead on the slumping euro, which fell to an 18-month
low against the dollar, under $1.24. For details see [FRX/].

After rising nearly a point on Friday, the benchmark
10-year note (US10YT=RR: ) rose 3/32 on Monday, its yield easing
to 3.44 percent. Two-year notes (US2YT=RR: ) were unchanged in
price, yielding 0.78 percent.

A downturn in stock index futures and data showing that
manufacturing activity in New York State grew at a slower pace
than expected in May also supported the bid for Treasuries.

The New York Fed’s “Empire State” general business
conditions index declined to 19.11 in May from 31.86 in April.

“It’s obviously weaker than expected. The focus is away
from the data, but in this kind of market bonds will use weaker
data as an excuse to rally,” said Carl Lantz, U.S. interest
rate strategist at Credit Suisse in New York

Ten-year notes rallied overnight in Asia, sending yields as
low as 3.38 percent as the Euro sold off, said Thomas di
Galoma, head of fixed-income rates trading at Guggenheim
Securities in New York.

“Traders are reacting to fears over how austerity measures
will hamper growth in the European economy,” di Galoma said.

“The trouble is that the real rate of return on euro
denominated bonds is weakening, which will make it harder for
euro governments to attract foreign capital,” he said.

Bond investors have paid close attention to the euro in
recent weeks amid weakened confidence in Europe’s 11-year-old
experiment with a single currency.

“We think that it won’t be long before there’s a one-sided
market against the currency with talk of France or Germany
pulling out,” Di Galoma said.

There was good buying of Treasuries in Asian and London,
with the euro slide and stocks being the catalyst, said John
Spinello, chief fixed-income technical strategist at Jefferies
& Co. in New York.

Spinello said there would be a tendency to sell strength in
Treasuries, but that volatility would continue.

Resistance lies at 3.42 percent to 3.38 percent on the
10-year yield and support lies at 3.49 percent to 3.515
percent, “a familiar zone from last week’s trading.”

Five-year notes (US5YT=RR: ) rose 2/32 in price after rising
14/32 on Friday, their yields easing to 2.15 percent from
Friday’s close of 2.13 percent.

The 30-year bond (US30YT=RR: ) was up 7/32, its yield easing
to 4.33 percent.

Investment Advice

(Additional reporting by Burton Frierson in New York)
(Editing by Theodore d’Afflisio)

TREASURIES-Prices extend rise as safety bid buoys bonds