Bonds edge up in Asia amid euro zone uncertainty

TOKYO: US Treasuries edged up slightly on Wednesday as investors nervously looked to Europe, with the main focus on Italy after Prime Minister Silvio Berlusconi pledged to resign following the passage of budget reforms.

Bonds dropped on Tuesday as share prices rallied on the news of Berlusconi's resignation, but many investors are still wondering if Italy will be able to reverse the selloff in its bonds.

"After all, it's not clear who will lead the next government. And Greece is in its third day of choosing its leader despite its pledge to do that in one day. Politics is hard to predict and the market will be driven by news flows," said Hiroki Shimazu, market economist at SMBC Nikko Securities.

In Greece, two days after the left and right of Greek politics agreed in principle on an interim government, an internal row in the conservative ranks was hindering a deal to form a coalition led by former European Central Bank Vice President Lucas Papademos.

The yield on 10-year notes dipped to 2.06 percent, from 2.08 percent in late US trade.

Strong demand at Tuesday's three-year bond auction bodes well for Wednesday's sale of $24 billion in reopened 10-year Treasury notes.

But the outcome could ultimately depend on Europe, and any positive development in efforts to tackle the crisis could dampen demand for US bonds.

Copyright Reuters, 2011