LONDON: U.S Treasuries held steady in Europe on Tuesday after rallying on Monday, with a heavy supply schedule dampening a market otherwise well supported by worries over the euro zone debt crisis.
Measures to strengthen budget discipline agreed at a European Union summit last week have not eased immediate market worries over sovereign debt. The threat of blanket ratings downgrades across the euro zone also helped keep low risk assets supported into year end.
The US Treasury will sell $21 billion of 10-year notes later on Tuesday, part of $177 billion of issuance from seven auctions spread over eight trading days. A $13 billion 30-year sale follows on Wednesday.
"It is difficult to judge whether a sufficient concession has been built into the 10-year part of the Treasury curve already, given Monday's bull-flattening on the back of risk-off trades," Societe Generale strategists said. "However, following...the 30-year auction...there is a good chance of a rally in Treasuries going into the weekend, in our view. The technical picture also appears to be bullish."
The bank said the T-note future was likely to break back above Friday's high of 130-13/32 towards the November high of 131-08/32 and September high of 131-28/32.
The T-note future was last 7/64 lower at 130-59/64, with benchmark 10-year yields up 1.5 basis points at 2.03 percent.
"Treasuries are in demand, they're a product a lot of people want to own," a trader said. "Once supply is out of the way it should be constructive into year-end with the flight to quality and still so much uncertainty surrounding Europe."
The Federal Reserve policy-setting committee announces its decision after a one-day meeting at 1915 GMT. In a Reuters poll, primary dealers expect the Fed to leave the Fed funds rate in the current 0.0 percent to 0.25 percent range. Some analysts expect the Fed to wait until a two-day meeting on Jan. 24-25 before launching any new initiatives.
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