NEW YORK: US Treasuries prices fell on Tuesday as stocks rose on strong earnings from Goldman Sachs and talk of aid for Spain lifted the euro, curbing government bonds' safe-haven appeal.
Goldman Sachs reported a third-quarter profit, reversing a year-earlier loss, as revenue more than doubled due to gains in the investment bank's holdings of stocks and bonds.
The euro also rose against the dollar, helped by persistent talk that Spain may soon ask for a bailout and on tentative signs of improving confidence in the German economy.
"Goldman knocked the (Treasuries) market lower, and there is also talk that Germany is open to credit for Spain," said Richard Gilhooly, an interest rate strategist at TD Securities in New York.
Benchmark 10-year notes fell 14/32 in price with yields rising to 1.72 percent, up from 1.67 percent late on Monday.
Thirty-year bond prices fell 1-7/32 with yields testing support levels at around 2.90 percent, near the high yield of 2.904 percent where the Treasury sold new bonds last Thursday.
If yields rise above the 2.91 percent level they may next test the 2.97 percent to 3 percent area, said Gilhooly.
Ten-year notes yields have largely been rangebound since the beginning of August on low volumes as many investors have been reluctant to take positions with uncertainty ahead of next month's Presidential elections.
That could change, however, if Republican challenger Mitt Romney continues to gain traction, said Scott Graham, head of US government bond trading at BMO Capital Markets in Chicago.
"That will have a meaningful impact on the Federal Reserve composition next year. In the face of seemingly endless quantitative easing and open-ended mortgage purchases, you could see the markets react pretty violently to a Mitt victory," he said.
Romney has said he would replace Ben Bernanke as Fed Chairman if he is elected, which would make the current open-ended quantitative easing program more likely to end.
That could mean that the market would then expect lower inflation and that intermediate-dated debt, where the Fed has focused most of its debt purchases, would underperform relative to bonds, Graham said. "Probably the best way to position for that would be a massive flattening trade," he said.
Treasuries showed little reaction to data on Tuesday that showed that US consumer prices rose 0.6 percent in September as the cost of gasoline surged.
Two-year interest rate swap spreads also tightened by almost a basis point to fall below 10 basis points, the tightest since 1996, indicating credit conditions are loosening.
"Two-year spreads under 10 basis points is a big deal, it shows that credit is plentiful and percolating through the system a little bit more," Gilhooly said.
The two-year swap spreads have rallied from over 50 basis points at the beginning of the year.
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