LONDON: US Treasury prices fell in Europe on Tuesday as a short-term bills auction in Madrid went better than expected, cooling some of the worries that Spanish budget problems could escalate into a new round of euro zone financial stress.
Spain sold a more-than-planned 3.2 billion euros ($4.2 billion) of 12- and 18-month bills, drawing good demand from domestic banks, but yields rose sharply as expected.
The result triggered some profit-taking from investors that have sold Spanish debt and other assets perceived as relatively risky in recent days, while knocking German Bunds off their highs and sending US debt prices lower.
T-note futures were last down 5/32 on the day at 131.16/32, while cash 10-year yields were 1.4 basis points higher at 1.9964 percent.
"The focus has been on Spanish supply, it went very well ... it's been a 'risk on' event," Bank of Montreal trader Craig Collins said. "But the 2 percent level (in 10-year yields) has been enough to bring in real money."
Nerves remain ahead of a longer-term bond auction on Thursday as Spain is increasingly seen as the new source of contagion in the euro zone debt crisis.
Data such as US housing starts or industrial output later in the day could provide more clues about the strength of the recovery in the world's largest economy, but traders said any market reaction should be brief as the focus remains on the euro zone debt crisis.
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