Bonds slip in Asia on profit-taking

TOKYO: US Treasuries fell on profit-taking on Tuesday after a surge the day before on mounting worries about Greece, although declines were limited as flight from riskier assets continued with Asian stocks near a 16-month low.

Fears over the banking sector's exposure to euro zone sovereign debt and the plummeting value of assets across the board further led to a sharp widening of credit default swap spreads.

Ten-year notes dipped 8/32 in price. The yield recovered from an overnight low below 1.75 percent to last stand at 1.7781 percent, compared with 1.917 percent at the end of last week.

More than a week ago, the 10-year yield touched 1.674 percent, the lowest level in at least 60 years.

"There aren't many people in Asian time who have to buy Treasuries at whatever cost, so it's relatively easy to take profits after such a spike in prices," said Akihiro Nagata, head of foreign bond trading at Sumitomo Mitsui Banking Co in Tokyo.

While analysts are calling for the drop in yields to continue in light of worries over contagion from Europe's debt crisis and stalled US economic growth, Nagata warned that yields could spike if the European Central Bank lowers rates this Thursday.

"It's a tough call and the market is pretty divided on this one, but some 80 percent of brokers are now saying that it may cut rates. Should this happen, we may see a short-term bounce in risk appetite and a strong move higher in yields," he said.

The Treasuries market made a strong start to the fourth quarter after a robust third quarter, in which longer-dated debt prices recorded their best performance since the last three months of 2008, at the height of the global financial crisis.

Federal Reserve Chairman Ben Bernanke testifies on the economic outlook before the Joint Economic Committee in Washington.

Copyright Reuters, 2011