TREASURIES-Long bonds gain as auction sees strong investor d
* Treasury sells $13 bln 30-yr bonds to strong demand
* Yield curve flattest in six years
* Intermediate-dated note yields rise after strong data
By Karen Brettell
NEW YORK, Dec 11 - Long bonds rallied and the yield curve was the flattest in six years on Thursday after the government auction for 30-year bonds saw strong demand, selling at the lowest yields since 2012.
A reach for yield has pushed investors to seek out longer-dated U.S. debt, with few alternatives for high-quality bonds.
The $13 billion of reopened bonds sold at more than two basis points below where they were trading before the auction. Dealers took the lowest-ever share of the sale as investor demand crowded them out and as banks also have lower risk appetites heading into year end.
"It was a stellar auction," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. "Even very strong economic data has almost no ability to dent the 30-year part of the curve."
Treasuries weakened earlier on Thursday after data showed U.S. consumer spending advanced at a faster pace than expected in November. Most Treasuries pared price losses after the auction, but remained lower on the day.
Retail sales is the last major indicator before next week's highly anticipated Federal Reserve meeting, when many investors expect that the U.S. central bank may change its vow to keep interest rates near zero for a "considerable time."
"It's the last piece of reliable data in front of the Fed," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. He noted that intermediate-dated debt, the most sensitive to interest rate increases, took the brunt of the weakness.
Three-year notes fell 4/32 in price to yield 1.06 percent, up from 1.02 percent late on Wednesday. Five-year notes dropped 6/32 in price to yield 1.60 percent, up from 1.57 percent.
Benchmark 10-year notes fell 4/32 in price to yield 2.18 percent, up from 2.17 percent, and 30-year bonds gained 5/32 in price to yield 2.83 percent, down from 2.84 percent.
Thirty-year bonds are likely to remain in demand, and many see the yield curve continuing to flatten as investors continue to chase yields even as the Fed moves closer to raising interest rates.
"There's a lot of pressure to come on the 30-year part of the curve from buyers that can't find duration anywhere else," said Kohli of BNP Paribas.
The gap between 5-year note and 30-year bond yields flattened to 122 basis points.