Yields fall on safety buying as Ukraine tensions rise

Reuters - U.S. Treasury debt prices gained on Tuesday as rising tensions in Ukraine sparked a safety bid for U.S. bonds, and a weak manufacturing survey for New York state pointed to sluggish economic momentum. Geopolitical tensions were high as Russia declared Ukraine on the brink of civil war on Tuesday as Kiev said an "anti-terrorist operation" against pro-Moscow separatists was under way, with troops and armored personnel carriers seen near a flashpoint eastern town.

Concerns over escalating conflict added to U.S. bond purchases, after a gauge of manufacturing in New York state earlier grew at a slower rate than the previous month, and below expectations in April.  "It added to the Treasuries rally in the long end; emerging markets overall are getting hit harder," said Michael Chang, an interest rate strategist at Credit Suisse in New York.

U.S. benchmark 10-year Treasury notes were up 6/32 in price to yield 2.62 percent, down from 2.66 percent earlier on Tuesday. Thirty-year bonds, meanwhile, gained 19/32 in price to yield 3.45 percent, down from 3.50 percent earlier.

Shorter-dated Treasuries yields briefly rose earlier on Tuesday after the Labor Department said on Tuesday its Consumer Price Index increased 0.2 percent last month as a rise in food and shelter costs offset a decline in gasoline prices. The CPI index had gained 0.1 percent in February.

The data came as the Treasury is due on Thursday to sell $18 billion in five-year Treasury inflation-protected securities, or TIPS. U.S. inflation-linked bonds have been among the worst
performers since the Fed last year indicated that it would begin tapering its monthly bond purchases, with investors worrying over what catalyst will lead inflation higher.

Investors are focused on a busy week of data releases for signs on the strength of the economy as the Federal Reserve pares its bond purchases and looks ahead to interest rate hikes
that most expect to begin next year.

Housing data on Wednesday will be evaluated to see if activity picked up, after months of subdued data that many have blamed on the winter weather. "When the clouds part, if we don't get a lift to housing, that could be a big issue," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

The Fed will release its Beige Book report on Wednesday, a collection of anecdotes from the central bank's business contacts across the country. Fed Chair Janet Yellen will also speak on Wednesday about the economy. She spoke on Tuesday about markets regulation, but did not discuss monetary policy.

A Philadelphia manufacturing survey released on Thursday will also be in focus after Tuesday's weak New York report. The bond market will close early on Thursday and be closed all day on Friday for the Good Friday holiday.

The Fed bought $2.20 billion in notes due 2020 and 2021 on Tuesday as part of its ongoing purchase program. It will purchase between $0.90 billion and $1.15 billion in bonds due from 2036 to 2044 on Wednesday.