NEW YORK: Treasuries prices fell on Friday as safe-haven flows to US government debt ebbed after French President Nicolas Sarkozy hinted at a deal to resolve the Greek debt crisis.
News of a new rescue package for Greece allowed riskier assets to rally - stock index futures pointed to a higher open on Wall Street - and diminished the appetite for safe-haven investments like US Treasuries.
The Greek debt crisis has been affecting moment-to-moment safe-haven flows as the Greek government tries to muster internal political support for austerity measures demanded by the European Union and IMF in exchange for cash to avert a debt default.
Benchmark 10-year notes were down 5/32 in price, their yields up to 2.95 percent from 2.93 percent late on Thursday.
"We recommend a neutral Treasury market exposure until more concrete signs emerge that the market is poised to re-trend," said RBS US government bond strategist William O'Donnell.
"Daily and weekly momentum studies are into overbought territory," he added, citing resistance at 2.90 percent for 10-year yields and support at 3.10 percent, the 200-day moving average.
Traders said the market was consolidating recent gains, waiting for more data on the economy to set its next course, while also following news on the euro zone debt situation.
Bond investors are seeking clarifying data on the US economy after getting mixed signals this week. On one hand, data on regional manufacturing for June looked weak, pushing Treasuries prices up and yields down. On the other hand, a report released this week on US retail sales in May exceeded expectations. That report boosted prices of riskier assets like stocks and commodities and hurt prices of US debt.
The key piece of economic data on Friday will be the Thomson Reuters/University of Michigan report on consumer sentiment due at 9:55 a.m. ET (1355 GMT), in which the main index is forecast to read 74.0, versus 74.3 in May.
Still, "one number can't change the game at this point unless it's an employment number," said Kathy Jones, fixed-income strategist at Charles Schwab in New York.
Also, due at 10 a.m. ET (1400 GMT), the May leading indicators index is expected to be up 0.2 percent, in contrast to April's reading of -0.3 percent.
O'Donnell said that even as dealers and other core shorts have frequently had to scramble to cover, other, long-term holders of Treasuries have lightened up on long-term Treasury positions as 10-year note yields press below 3 percent.
"In the past few weeks, we've seen Asian investors liquidate some high coupon off-the-runs into the push higher," he said. "The persistent theme to these sales smacks of a program-like liquidation as we march lower in rates and inexorably toward the end of the Fed's QE2 purchases."
At the end of this month, the Fed finishes its second program of large-scale purchases of US government debt, begun in November. The program, intended to spur lending and economic growth, involved buying $600 billion in US Treasuries plus the reinvestment of funds from maturing assets in its portfolio of mortgage-backed securities.
O'Donnell said risks were skewed bearishly for Treasuries, though the technical and fundamental outlooks were not yet clear enough to make an "official" call on the market.
Two-year Treasury notes traded unchanged in price to yield 0.40 percent, while 30-year bonds were down 8/32 in price, their yield rising to 4.20 percent from 4.18 percent on Thursday.
Copyright Reuters, 2011
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