EU woes fuel demand for safe-haven US Treasuries

LONDON: US 10-year Treasuries yields hit their lowest in nearly a month in Europe on Tuesday as Greece's shock call for a referendum on its latest bailout plan sparked worries over the fate of the euro zone, fueling demand for safe-haven securities.

Markets were stunned by Greek Prime Minister George Papandreou's referendum call, which drew veiled threats from Germany towards Greece and concerns over a messy default on Greek debt. Wall Street was set to open nearly 2 percent lower.

US ten-year bond prices rose 20/32 to yield around 2.047 percent -- its lowest since Oct. 7 -- in tandem with falling yields in German government bonds.

Thirty-year bond prices extended gains, after posting on Monday their best day since the Federal Reserve announced its first massive stimulus programme. Yields were down 8 basis points at 3.05 percent near their lowest level in around three weeks.

"The Greek referendum has been the catalyst for a flight to the core in Europe, as the sustainability of the EU deal is now under question. There's also more negative news surrounding MF Global which has further fuelled the bid in Treasuries," said a trader.

Futures brokerage MF Global Holdings Ltd filed for bankruptcy protection on Monday following bad bets placed on euro zone debt.

Traders were reluctant to take aggressive positions ahead of the Fed's two-day monetary policy meeting starting later in the day and US economic data, including jobs, due later this week.

"I wouldn't expect any policy actions out of the Fed but they may be a little more transparent in projecting their expectations for where they see unemployment, growth and inflation heading," said the trader.

Two-year US government bond yields were flat at 0.25 percent, having been stuck in a range since the Fed said it would keep interest rates near zero for some time.

One possible support for the 10-year note lies near 2.44 percent, which roughly coincides with the 10-year yield's 100-day moving average and the 50 percent retracement of a July to September rally in 10-year Treasuries.

The Treasury Department holds its weekly sale of 4-week bills at 1530 GMT.

Copyright Reuters, 2011