LONDON: Treasury prices fell on Monday after Spain secured a bailout of up to 100 billion euros to rescue its ailing banks, easing some of the recent high tension over the future of the euro zone and curbing demand for safe-haven US bonds.
Treasury futures slipped 14/64 to 133-08 after euro zone finance ministers agreed to lend Spain the money it needs to recapitalise banks hit by losses on property loans, calming fears that the euro zone crisis could crush an already-sluggish global recovery.
"The Spanish banking system was a threat to the global economy last week, and so the removal of that threat justifies a risk-on rally," said Philip Shaw, chief economist at Investec.
Equity markets rose globally, the euro strengthened versus the dollar and Spanish bond yields fell on Monday, but market participants were cautious over how far the rally would run while major question marks remained about the bloc's future.
"The market realises this is a short term fix, this doesn't solve the overall situation. Treasuries have sold off but they're starting to catch a bid now," a trader said.
Treasuries pared losses throughout the European session. Ten-year yields hit a high of 1.73 percent in Asian trading but were last at 1.66 percent as investors questioned the structure of the Spanish bailout and whether it could be funded without increasing pressure on the region's sovereigns.
Greece's uncertain future in the euro zone also cast a shadow over the risk asset rally. Athens holds elections on June 17 which could propel the country out of the euro zone if parties opposed to the conditions of its international bailout win power.
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