Government debt prices fall ahead of Greek vote

NEW YORK: US Treasuries prices fell on Tuesday as optimism Greece will receive loans it needs to avoid a default fed demand for stocks instead of bonds.

There were hopes Greek Prime Minister George Papandreou would survive a confidence vote at around 2100 GMT.

If the vote is passed, it must be followed by spending cuts in order to receive European loans needed for Greece to pay its debt.

"There's a positive vibe this morning out of Greece. Yesterday the Greece news was very negative and today is seems a little bit more optimistic," said James Newman, head of treasury and Agency trading at Keefe, Bruyette and Woods in New York.

Bonds also accelerated losses after data showed sales of existing US homes fell 3.8 percent in May, less than some had feared.

"They were expecting a bigger dip," Newman said.

Trading volumes on Tuesday were light, however, as many investors were reticent to enter into new positions before the result of the Greek confidence vote.

"You've got people on the sidelines," said James Combias, head of government bond trading at Mizuho Securities in New York. "A lot of people have done what they needed to do and are waiting here to get a better feel."

Investors will also be closely watching the release of the Federal Reserve's policy statement on Wednesday and Chairman Ben Bernanke's second press conference.

Benchmark 10-year notes were last down 9/32 in price to yield 2.99 percent, up from 2.96 percent late on Monday. The notes have yield support at around 3.04 percent, and resistance at 2.88 percent, their lowest yield level since the beginning of December.

Five-year notes fell 4/32 in price to yield 1.56 percent, up from 1.53 percent, and 30-year bonds dropped 15/32 in price to yield 4.23 percent, up from 4.20 percent.

Meanwhile, short-dated interest rate swap spreads retraced on Tuesday, though remained near their widest levels in at least 6 months, as concerns ebbed over contagion from the troubled euro zone.

Two-year swaps tightened half of a basis point to 26.75 basis points. They traded as wide as 28 basis points last Thursday, the widest level since early December.

Five-year swap spreads were unchanged on the day at 30.75 basis points. They had widened to 32 basis points on Thursday, the widest level since last June.

The Federal Reserve on Tuesday bought $4.91 billion of notes due 2016 to 2018 in the second to last week of its $600 billion bond purchase program.

Copyright Reuters, 2011