Falling US debt prices seen as 'correction'

NEW YORK: The prices of US Treasury securities fell again on Tuesday, erasing gains that brought benchmark yields to historic lows last week, as investors' most acute anxiety over Europe's debt crisis subsided.

The ultralong 30-year Treasury bond fell more than a point in price in early trading.

Market participants on both sides of the Atlantic were encouraged by news that 16 of the 17 euro zone member countries had passed legislation to expand a stability fund for Greece and other struggling euro zone countries. The final country is Slovakia and its finance minister Ivan Miklos said on Tuesday he sees the EFSF being approved later this week.

But analysts warned the vote could actually halt -- if only briefly -- a rally in riskier assets such as stocks and commodities.

"Following the recent relief rally across asset classes, related to signals that European policymakers and politicians could tackle the erosion in the solvency of systemically relevant euro area banks more comprehensively and in a coordinated fashion, we would not be surprised to see some profit taking," wrote four London-based Barclays analysts in a note to clients.

"Slovakia's EFSF approval vote is scheduled for today and could create renewed concerns about the overall approval of the EFSF reform."

Without another bout of panic, however, Treasuries' direction seemed to be clear: higher yields, lower prices.

William O'Donnell, head of US interest rate strategy at RBS Securities in Stamford, Connecticut, said he saw the 10-year yield nearing what he called "a solid support zone that we see extending from 2.20 percent up to 2.35 percent."

Benchmark 10-year notes traded 23/32 lower in price to yield 2.15 percent, up from 2.07 percent late on Monday. The 10-year yield is nearly 40 basis points above a 60-year low it set more than two weeks ago.

Thirty-year bonds on Thursday traded 1-12/32 lower in price to yield 3.08 percent, up from 3.01 percent at Monday's close. The three-year Treasury note fell 3/32 in price to yield 0.53 percent. The Treasury Department will auction $32 billion in three-year notes at 1p.m. (1700 GMT).

The current three-year yield is nearly 20 basis points above the lowest-ever auction yield for three-year notes, which fixed at 0.334 percent on Sept 12.

Copyright Reuters, 2011