LONDON: US Treasuries were steady in Europe on Monday, reversing some overnight gains as hopes policymakers in the United States and Europe will take further policy steps buoyed riskier assets.
A few market players expect the US Federal Reserve to adopt more quantitative easing at its two-day policy meeting starting on, although many think additional measures are more likely later this year.
But expectations have grown that the ECB will take action to lower Spanish and Italian borrowing costs at its meeting on Thursday after President Mario Draghi said last week he would do whatever it takes to save the euro. Those comments were echoed by German Chancellor Angela Merkel.
However the risk is that now expectations are so high - with safe-haven Bund yields at their highest levels in over three weeks, the ECB may disappoint.
"There was some good buying in Asia but we've seen a big seller in Europe," one trader said. "The ECB are playing the communication tool - talking it rather than walking it - but overall at some point they have to do what the US is doing and take some bonds out of the market."
Ten-year Treasury yields were little changed at 1.55 percent after rising as high as 1.59 percent on Friday, the most since in three weeks. The T-note future was 1/32 higher at 134-05.
"Of course, we all have to see what will come of policy meetings. But if I have to bet, the 10-year Treasury yield is likely to peak around 1.6 percent," said Arihiro Nagata, manager of foreign bonds at Sumitomo Mitsui Banking Corp.
"Now investors are holding off buying ahead of the ECB but after that they will likely come to buy unless the ECB comes with a real surprise. In addition, corporate bond issue will dwindle in August so the market's demand-supply balance will be favourable," he added.
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