US Treasuries sell-off a chance to buy: BNP

NEW YORK (Reuters) - The recent sell-off in U.S. government bonds has produced a "buying opportunity" for longer maturity Treasuries, Richard Gilhooly, senior U.S. bond strategist at BNP Paribas Securities Corp., said on Tuesday.

The 10-year Treasury note and 30-year Treasury bond look attractive as yields appear to be "hitting their highs for now," Gilhooly said at the Reuters Investment Outlook Summit in New York.

The 10-year Treasury note's yield, which moves inversely to its price, was at 5.22 percent on Tuesday, near a one-year high of 5.25 percent. The 30-year bond yield was at 5.33 percent, near a three-year high, after a sharp bond market sell-off in the past week, partly on investors' growing concerns about future inflation and further interest-rate increases from global central banks.

Indeed, the European Central Bank, Reserve Bank of New Zealand and South Africa's central bank all raised interest rates last week, citing inflationary pressures as the dominant factor behind their decisions.

Last week's sell-off in U.S. Treasuries, however, was largely driven by technical factors in the mortgage-backed securities market, or MBS, rather than fundamental factors such as inflationary pressures, said Gilhooly, who is based in New York.

"For the time being, what we are seeing is a technical phenomenon," said Gilhooly, about the sell-off in the U.S. bond market. "The whole mortgage universe tried to hedge at the same time."

When yields rise sharply, as they have over the past several weeks, there's less incentive for homeowners to refinance their mortgages; thus prepayments of principal in mortgage-backed securities slow and prices fall more quickly than for other bonds and duration increases.

Duration is a measure of a bond's price sensitivity to interest rates.

To maintain their portfolios' duration relative to the benchmark when rates rise, MBS investors often sell Treasury bonds. This forced selling exacerbates volatility of the overall market, as happened last week.

If fears of inflationary pressures were building, investors would see it in the inflation component in Treasury inflation-protected securities, or TIPS, Gilhooly said.

In the past six weeks, that measure has widened less than 15 basis points, which is a negligible move, he added.