T-note yields up as risk appetite stalls safety bid

LONDON: US Treasury yields rose in European trading on Tuesday following Monday's public holiday, catching up with a sell-off in German debt the previous day on renewed optimism that euro zone leaders were set to tackle the region's debt crisis.

Yields on US debt rose, with the 10-year bond up 4.4 basis points at 2.1196 percent and 30-year paper up 4.4 bps at 3.0614 percent.

US cash bond trading was closed for the Columbus Day holiday on Monday, when demand for triple-A rated government bonds fell and equity markets rallied after France and Germany pledged a new plan to tackle Greece's spiralling debt crisis and shore up euro zone banks, weakened by losses on lower-rated sovereign debt.

The commitment by the leaders of Europe's two largest economies, although light on details, was seen as a step towards to the far-reaching solution needed to encourage risk appetite.

After 30-year yields rebounded off their lowest levels since January 2009 last week, technical charts pointed to the prospect of a renewed sell-off in Treasuries if yields push much higher.

"We're sitting on big levels in the 30-year, if we can break above 3.07 percent then we could be set fair for a move to 3.50 percent," said Monument Securities rate strategist Marc Ostwald, highlighting a breach of a multi-year trend line.

However, with US investors still sceptical that containment of the euro zone crisis is imminent and domestic economic concerns supporting demand for low-risk government debt, any further selling pressure could find willing buyers.

"I don't think this tells you the world is a better place, that's just not what the US market action is telling us ... after a dip, people are using that as an opportunity to get back in at a lower price," a trader said.

The US Treasury will later auction $32 billion of three-year debt.

"I think the market is going to be reasonably well up on the supply... typically those auctions have been well subscribed and I don't see a change in that," the trader said.

Copyright Reuters, 2011