0539 GMT - U.S. Treasury yields are expected to fall further, although the inflation picture and the Federal Reserve may be stiff near-term headwinds, Capital Economics Thomas Mathews says in a note. U.S. Treasurys recovered slightly last week and one potential cause for the rally was a couple of strong Treasury auctions, the head of markets for Asia Pacific says. "But while that's welcome news, auction strength has not always been a reliable signal of sustained gains in the past. If anything, higher bid-to-cover ratios have often coincided with rising yields," he says. Nonetheless, Capital Economics retains the view that the Treasury rally will eventually make its way onto firmer footing.
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