LONDON: US Treasuries slipped in Europe on Thursday on signs that a political deadlock in Italy may be easing, but safe-haven assets were expected to stay underpinned by worries that the country's debt burden has become unsustainable.
Italy's ruling PDL party softened its insistence on early elections as the way out of a deep political crisis and said it was considering the option of a government led by respected international figure Mario Monti.
Italian bond yields fell back from the previous day's record highs of around 7.5 percent but still traded above the 7 percent level seen as unsustainable. Traders said the European Central Bank was again actively buying Italian bonds to try and push yields back down.
"For the most part fixed income markets are fading a bit today. We've seen some selling in Treasuries in the 8- to 10-year part of the curve." said a trader. "But if Italy derails again, then all bets are off."
US 10-year notes were down 4/32 in price to yield 2.005 percent. T-note futures were down 5/32 on the day at 130.21.
"US 10-years are more bullish while they trade above yesterday's 129.285 low and while this remains the case the expectation is for limited corrections and further price strength," said Richard Adcock, technical strategist at UBS.
"A break above yesterday's 131.00 high will be the next bullish trigger, opening the door back to 131.125, then 131.30, the Sep. 23 extreme," he said.
Later on Thursday, the market will have to digest the Treasury's $16.0 billion 30-year bond auction, the last of three sales comprising this week's $72.0 billion refunding.
US international trade data and weekly jobless claims are also due for release. Economists in a Reuters survey forecast a total of 400,000 new filings compared with 397,000 in the prior week.
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