US bonds prices fall as supply glut weighs

Wednesday, 22 February 2012 18:54

LONDON: US Treasuries dipped on Wednesday as the clinching of Greece's bailout saw some investors trim positions in safe-haven assets, with heavy new bond supply this week expected to pressure prices further.

Treasury futures slipped 3/32 to 130-35/64 and the yield on benchmark 10-year Treasuries inched up 0.5 basis points to 2.056 percent ahead of a five-year debt sale later in the day.

However prices retain some support from market concerns over Greece's ability to implement the tough reforms and cost-cutting measures required by the terms of its latest bailout package, market participants said.

"We've seen a recent back-up in yields on a lot of optimism about Greece, but nothing has really been solved. The reality is they still have a lot of hoops to jump though and it's not going to go away as an issue," a trader in London said.

Ten-year Treasury yields have risen by more than 10 bps in the last week, driven to the top of their recent range by events in Europe where the risk of a disorderly Greek default has receded.

The recent fall in bond prices across the curve should make the week's new debt supply look relatively attractive and guarantee solid demand, Lloyds strategist Eric Wand said.

"There's a degree of risk-off coming into the market and a slightly better bid than there has been the last couple of days so that should spur interest. As long as the current ranges hold, there should be sufficient demand," Wand said.

The Treasury Department will sell $35 billion in five-year notes on Wednesday and $29 billion in seven-year debt on Thursday. On Tuesday it sold two-year bonds worth $35 billion.