US bonds firmer after S&P downgrades Italy

SINGAPORE: US 10-year Treasury notes inched higher in Asia on Tuesday as a downgrade of Italy's sovereign rating and falls in equities lent support to safe haven US government debt.

Ten-year notes rose 5/32 in price to yield 1.939 percent, down around 1 basis point from late US trade on Monday.

Treasuries opened Asian trading firmer after Standard and Poor's cut its unsolicited ratings on Italy by one notch, and later drew support from weakness in Asian equities and US stock index futures, said a trader for a US financial institution in Tokyo.

"There are some strong bids, but it is not as if there are lots of buying flows," he added.

Thirty-year bonds rose 8/32 in price to yield 3.212 percent. The 30-year yield had touched a low of 3.176 percent on Monday, marking the lowest since January 2009.

The US Federal Reserve is seen likely to adopt some form of additional monetary easing at a two-day policy meeting that starts on Tuesday, for example by shifting its bond holdings away from shorter-term debt and into longer-term paper, an option known as Operation Twist.

Market speculation that the Fed may adopt such an easing measure has helped longer-end Treasuries outperform compared to short-dated paper in recent weeks, causing the yield curve to flatten.

Copyright Reuters, 2011