Flat in Asia, more volatility seen ahead

TOKYO: US Treasuries were mostly unchanged in Asia on Monday after the previous session's rally as the market cautiously prepared for more uncertainty, worrying the euro zone's support for Greece is wobbling and the country may be forced to default on its debt.

The worries over Europe were sparked by the resignation of European Central Bank Executive Board Member Juergen Stark. The ECB confirmed a Reuters report that said Stark was quitting. The report said he was leaving because of a conflict over the bank's bond buying programme.

Markets are also bracing for possible ratings downgrades on France's top banks, as well as Italy's sovereign rating. Moody's warned on June 17 that it may cut Italy's credit ratings in the next 90 days.

"The market is worried about Italy's sovereign rating and the French bank rating cut -- that's why we're seeing more appetite for Treasuries, and I guess we'll see yields soften towards 1.7 percent near term," said Akihiro Nagata, head of foreign bond trading at Sumitomo Mitsui Banking Co in Tokyo.

"On the other hand, though, prices are barely changed because those who went long Treasuries ahead of the weekend realised there hasn't been that much of a rally and are now taking profits."

Federal Reserve Chairman Ben Bernanke had helped Treasuries surge on Thursday by stoking prospects of more central bank easing.

The benchmark 10-year notes nudged up 2/32 in price to yield 1.910 percent. The 10-year yield still hovered within striking distance of 1.896 percent -- the lowest since at least World War Two hit last week on European debt worries and hopes that the Fed will intervene to lower long-term rates.

The Treasury will sell three-year notes at 1700 GMT.

Copyright Reuters, 2011