Treasuries gain as weaker data add to Fed stimulus speculation

June 15 (Bloomberg) -- Treasuries rose, set for a weekly gain, amid speculation a slowing U.S. economy will prompt the Federal Reserve to add stimulus measures, stoking investor demand for the safety.

Yields dropped as reports showed manufacturing in the New York region expanded in June at the slowest pace in seven months and U.S. industrial production unexpectedly fell. Thirty-year yields declined to a one-week low as Greeks prepare to vote in two days after a ballot in May failed to produce a government. Central banks of major economies are preparing for coordinated action to provide liquidity if needed, Reuters reported.

“It was a pretty soft reading from the Empire manufacturing index,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which oversees $12 billion in fixed-income assets. “Although it covers one region, the market is very sensitive to negative news right now. There is an overriding factor: It’s the last day to get your buying in ahead of the Greek elections. It’s a frenzy of last-minute protection.”

The 10-year yield dropped six basis points, or 0.06 percentage point, to 1.58 percent at 9:33 a.m. New York time, according to Bloomberg Bond Trader data. The 1.75 percent note due in May 2022 gained 18/32, or $5.63 per $1,000 face amount, to 101 18/32. The 10-year rate, which fell to a record 1.44 percent on June 1, ended last week at 1.64 percent.

Thirty-year bond yields fell six basis points to 2.68 percent. The two-year yield slipped one basis point to 0.28 percent.

Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets. Group of 20 policy makers are scheduled to meet on June 18-19. The Fed meets June 19-20.

Empire Manufacturing

The Fed Bank of New York’s general economic index dropped to 2.3 this month, less than the lowest forecast of economists surveyed by Bloomberg News and down from 17.1 in May. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. The last negative reading was in October.

Growth in U.S. industrial production decreased 0.1 percent last month, after a revised 1 percent gain in April, according to the Fed in Washington. Manufacturing, which makes up about 75 percent of total production, dropped 0.4 percent last month.

Ten-year notes outperformed similar-maturity German bunds as investors favored securities from outside the euro area. German 10-year bund yields were little changed at 1.48 percent, leaving the yield difference, or spread, with Treasuries two basis points narrower at 14 basis points. That compares with a spread of 31 basis points at the end of last week and this year’s high of 49 basis points on April 3.

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