NEW YORK: US Treasuries yields rose on Thursday, trading near three-month highs as diminishing fear about the euro zone and less conviction that the Federal Reserve will initiate more monetary stimulus next month dampened demand for safe-haven US debt.
A rising stock market also lured investors from Treasuries. The benchmark S&P 500 stock index was poised to end at a four-month high.
Remarks from German Chancellor Angela Merkel appeared to support efforts of the European Central Bank to address the euro zone debt crisis. Merkel asserted that ECB chief Mario Draghi's late-July pledge to do all that was needed to preserve the euro was in sync with what European leaders have been saying.
Some recent economic reports pointing to improving, though still lackluster, growth in the second half of the year also challenged the consensus that the Federal Reserve will initiate new stimulus measures when policymakers meet next month.
Market players have been keenly awaiting remarks by Fed Chairman Ben Bernanke at the US central bank's annual conference in Jackson Hole, Wyoming, at the end of August.
The support for the euro expressed by Draghi last month, seemingly echoed by Merkel on Thursday, "have had a significant effect on easing anxiety in the markets and that has helped push Treasury yields higher," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
"The sense that the Europeans are carving out a more viable, concrete package of aid, specifically for Spain, has eased worries in the global markets," she said.
She also cited the change in sentiment on action by the Fed .
"A strong consensus that Bernanke would signal another round of quantitative easing in his speech at Jackson Hole at the end of the month has begun to fade as the economic data begin, albeit unevenly, to get marginally better," Krosby said.
Those doubts weighed on Treasury prices, allowing yields to lengthen their upward climb from historic lows reached less than a month ago.
The 30-year Treasury bond yield briefly moved through its 200-day moving average at 2.9658 percent.
The benchmark 10-year Treasury yield traded just under its 200-day moving average. It stood at 1.839 percent in late trade, up from 1.826 percent late on Wednesday.
Overnight, benchmark 10-year note yields traded as high as 1.86 percent, their 200-day moving average and the highest level since May 11. The yields have risen from a record low 1.38 percent on July 25.
Yields have surged in the past month as economic data improved, curbing bets that the Fed will launch a third round of quantitative easing, or QE3, and as investors covered positions that had bet on further yield declines.
"There are questions over whether the data that we've been seeing is enough to keep QE3 off the table," said Sean Murphy, a Treasuries trader at Societe Generale in New York.
Treasuries fluctuated on Thursday after data showed the number of Americans filing new claims for jobless benefits edged higher in the latest week. That briefly extended price gains, sending yields to session lows after another report showed that factory activity in the US mid-Atlantic region shrank in August for the fourth straight month.
Traders said foreign investors have been selling Treasuries in overnight sessions this week on the back of strong reports, including US industry output on Wednesday and better-than-expected retail sales on Tuesday. But thin, summer trading volume is exacerbating the recent price moves.
"We'd gotten overdone to the downside in yields and now we've probably gotten a little bit overdone to the upside in yields," said Alan De Rose, head trader of government trading and finance at Oppenheimer & Co in New York.
He sees yields likely to remain relatively rangebound before Bernanke's highly anticipated speech at the Fed's annual conference later this month.
Bernanke used his Jackson Hole speech in 2010 to hint at the Fed's second round of quantitative easing.
EUROPE FEARS EBB
Receding concerns about Europe have added to the bond sell-off as investors build hopes that the European Central Bank will take steps, including bond purchases, to reduce potential refunding problems for nations like Spain and Italy as their debt yields spike.
Investors are now focused on the ECB's September meeting. Spain and Italy will need to request the euro zone bailout funds buy its bonds before the ECB can intervene, and the bailout funds still need to be activated before making any purchases.
"Asking for a bailout is not always a positive development," said Societe Generale's Murphy. "There is probably some complacency over what's transpiring for Europe come the middle of September and that might be the reason the market firms back up again."
Buyers have been stepping in at key technical levels, including the 1.86 percent area, said Murphy.
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