US Treasuries investors may demand higher yields next week to absorb $72 billion in new supply, though resurgent fears over the European debt crisis will govern how far any potential debt weakness will reach. The US bond market might succumb to selling early on Monday, as some investors could pare their safehaven positions after Greek Prime Minister George Papandreou survived a parliamentary confidence vote on Saturday, analysts said.
Papandreou's win is seen as critical for Greece to receive a 130 billion euro aid package to avert a default that could deepen the region's debt crisis. Bond investors are grappling with how to value US bonds as economic data improves, which points to higher yields, while a safety bid from renewed Europe fears hammers yields downward.
Benchmark 10-year note yields dropped more than 29 basis points in the past week and a half as buyers rushed to the debt in spite of some signs of economic improvement. "The recent set of data has been moderately better than expected and people are looking at where we are in the ranges," said Sean Murphy, a Treasuries trader at Societe Generale in New York.
Treasuries rallied on Friday on fears over dramatic losses in Italian bonds, and Papandreou's confidence vote. After the vote, Robert Tipp, chief investment strategist at Prudential Fixed Income, which manages $240 billion, said: "It's a relief because we got over the Greek hurdle, but the market will remain on edge. The situation there is highly unstable."
Nagging worries about Europe overwhelmed US data that showed a somewhat improving jobs picture in October as the unemployment rate hit a six-month low. "This jobs report is very good," said Eric Green, chief US economist and head of rates strategy at TD Securities in New York.
"We have not moved substantially higher to the point that we are really comfortable that we can sustain a lower unemployment rate, but the underlying guts of this report gives us more optimism," he said. If investors hold faith in better data they are likely to seek higher yields for next week's debt sales.
The Treasury will sell $32 billion in three-year notes on Tuesday, $24 billion in 10-year notes on Wednesday and $16 billion in 30-year bonds on Thursday. If Europe gets back on track then we can really focus on supply," said SocGen's Murphy. "Right now you're bumping up against 2 percent (yields) in 10s and 3 percent in bonds, and it should pose significant resistance as you try to take down supply in the concession," he added. Ten-year notes last traded up 4/32 in price to yield 2.06 percent. Thirty-year bonds were also up 4/32 in price to yield 3.12 percent.
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