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Treasury bond yields tumble on economic fears

May 27, 2011|By Tom Petruno, Los Angeles Times

The spring rush to buy U.S. Treasury bonds is turning into a stampede as continued weak economic data push more investors into haven-seeking mode.

The yield on the 10-year Treasury note slid below 3.1% on Thursday for the first time since early December after the government's revised report on first-quarter economic growth came in softer than expected — more evidence of the recovery's loss of momentum this year.

The 10-year T-note yield, a benchmark for mortgage rates, dropped to 3.06% from 3.13% on Wednesday.

Market interest rates also fell on shorter-term bonds as the Treasury auctioned $29 billion in seven-year notes at a yield of 2.43%, below expectations.

The bond sale was the third by the Treasury this week, following auctions of $35 billion in two-year notes Tuesday and $35 billion in five-year notes Wednesday. All three sales attracted robust bidding.

"It's just continued [economic] growth concerns and a flight to quality from worries abroad," particularly Europe's debt woes, said Justin Lederer, interest rate strategist at brokerage Cantor Fitzgerald in New York.

What's more, analysts say, many big investors simply find themselves owning too few Treasuries after betting earlier this spring that the economy would improve and send bond yields higher. The approaching end of the Federal Reserve's $600-billion Treasury-bond-buying program, scheduled for completion June 30, also was expected to drive up yields.

With yields falling instead, some investors now are scrambling to grab Treasuries to guard against the risk that the economy will stumble badly.

The yield on two-year T-notes, a favorite hiding place for worried investors, slipped to 0.48% from 0.53% on Wednesday. As recently as April 11, two-year notes yielded 0.83%.

The fear factor that pushed cash into government bonds Thursday didn't register strongly in the stock market, where share prices climbed modestly.

The Dow Jones industrials rose 8.10 points, or 0.1%, to 12,402.76. The Standard & Poor's 500 index gained 0.4%.

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