Prices dip heading into this week's debt auctions

NEW YORK: US Treasuries prices eased on Monday as a relatively thin data calendar left traders to focus on the $66 billion of debt auctions this week and to push for lower prices ahead of the sales.

Still, yields remain near six-month lows and price losses were limited with recent evidence of a slowing economic recovery and worries over the eventual outcome of debt problems in Greece and Portugal supporting the safe-haven appeal of US government debt.

"We continue to believe the current rally in rates has more room to go. The short covering bids are most likely behind us and the market is caught between investors looking to sell the rich belly and take profits and those still underweight Treasuries and wishing they were long," said George Goncalves, head of US interest rates strategy at Nomura Securities International in New York. "The path for rates from here on could be a slow grind toward lower yields in our view."

Benchmark 10-year Treasury notes were trading 7/32 lower in price to yield 3.02 percent, up from 2.99 percent late on Friday. The yields dipped to 2.94 percent last week, marking the lowest since early December.

The Treasury is set to sell $32 billion of three-year notes on Tuesday, $21 billion of reopened 10-year notes on Wednesday and $13 billion of reopened 30-year bonds on Thursday.

But while some players are keen to push down prices going into the auctions, the market remains overshadowed by government data on Friday showing anemic jobs growth and a rise in the unemployment rate in May.

The Federal Reserve on Monday will buy $5 billion to $7 billion of Treasuries maturing December 2013 through May 2015 as part of its program to prop up the economy, known as QE2.

"The lack of information this week will leave the market to the whims of the push-pull of buybacks and auction, headlines out of Europe -- which we seem to be increasingly immune to -- and the performance of the equity/risk markets following Friday's data," said John Briggs, Treasury strategist at RBS Securities in Stamford, Connecticut.

Two-year Treasury notes were trading unchanged in price to yield 0.45 percent, while 30-year bonds were 20/32 lower in price to yield 4.27 percent, up from 4.23 percent late on Friday.

The price action early on Monday widened the spread between 2-year note yields and 30-year bonds yields to 383 basis points, with the gap between the two yields at its widest since mid-April.

While the Treasury auctions are expected to set much of the tone for this week's Treasuries trade, debt investors will also closely follow a speech on the US economic outlook from Fed Chairman Ben Bernanke on Tuesday afternoon in Atlanta. Any hints the US central bank might be mulling a QE3 Treasuries purchase program after QE2 runs out later this month would be considered especially important.

Copyright Reuters, 2011