Treasuries rise

US Treasuries advanced on Tuesday, sending yields to new lows as another sharp drop in home sales appeared to confirm investor fears the economic recovery was dying on the vine. Sales of previously occupied US homes fell 27.2 percent in July, accelerating an overnight bond-market rally fuelled by stock market losses and worries about the global economy.
Fears about the economic outlook sent investors hunting for safe returns in a period of tentative growth. "Risk aversion is causing investors to take money out of their volatile assets and put it into income assets," said Robert Tipp, chief investment strategist for Prudential Fixed Income, with $240 billion in assets under management.
"This is a global trend," Tipp said. "Treasuries, bunds, and gilts all rallied strongly as stocks fell." An "aggressive" bid for the Treasury's two-year note auction exemplified this pursuit, said Thomas Simons, money market economist at Jefferies & Co. "Sentiment continues to build for an even more negative economic outlook and expectations for Fed to raise rates in the next year have never been lower," Simons said.
Although the two-year notes offered a 3/8 percent coupon, less than the 5/8 percent coupon offered in the two prior auctions, demand for front-end Treasuries remained strong. "Aggressive bidding for a 0-3/8 percent coupon may seem strange, but this is the new reality," Simons said. As yields on short-term notes hovered at less than 50 basis points above zero, investors moved into longer-term maturities, seeking higher yields. This move narrowed the difference between 30-year bonds and two-year notes to 308 basis points from 316 basis points late on Monday. Meanwhile, the spread between two- and 10-year note yields narrowed to 202 basis points from 212 late on Monday.
Earlier gains had pushed yields down as far as 2.47 percent, the lowest 10-year yield since March 2009. The brief foray below 2.50 percent triggered a bit of profit-taking. The 30-year long bond rose two points, its yield easing to 3.56 percent. Long bond yields fell as far as 3.54 percent, their lowest since early April 2009.