US bonds advance with German debt as ECB assessed

LONDON: US Treasury debt prices were pulled higher in Europe on Friday by a surge into German Bunds as comments by the head of the European Central Bank on the strength of the euro prompted rate-cut speculation.

After the ECB left interest rates unchanged at 0.75 percent on Thursday, its president Mario Draghi said he will monitor the impact of a strengthening euro on the economy, going further than most analysts were expecting.

Treasuries reversed earlier losses posted in Asia after better-than-forecast trade data from China confirmed a recovery is under way in the world's second-largest economy.

"Pretty impressive little rally following Draghi. His concerns over the strength of the euro and then the euro got hit on the back of that, and Bunds were off to the races dragging us up," said Craig Collins, a trader at Bank of Montreal in London.

US 10-year T-notes were last up 2/32 in price to yield 1.94 percent, 2 bps less than in late New York trade on Thursday.

Concerns about potential political instability in Spain and Italy helped offset the impact on low-risk bonds of US data showing an improvement in the labour market, with the number of Americans filing new claims for jobless benefits falling last week.

"There is some better buying that has happened from real money guys. Guys who were trying to short this market through that 2 percent level, and it hasn't really seemed to have worked, so we definitely have a bit of a move on here," another trader said.

"Peripherals continue to move a little bit wider and if you see pressure back on the periphery it's goign to be difficult to be short Treasuries here at the moment," the trader said.

The 30-year US T-bond yield was last 1.5 bps down at 3.16 percent.