Selloff continues in Treasuries bond

NEW YORK: US Treasury prices fell on Tuesday, as Wall Street prepared for a five-year note auction and stocks rose following more reassuring news from Europe about Greece's debt crisis.

Treasury traders were focused on the Treasury Department's $35 billion sale of five-year notes, set for 1 p.m. (1700 GMT). A $35 billion two-year note auction on Monday drew surprisingly weak bidding, leaving dealers wary of the five-year sale.

Treasuries were also carried lower by an uptick in stock futures following news German banks were going to discuss with the government a voluntary rollover of Greek debt similar to the plan French banks adopted earlier this week. For more, click on.

"The market finally trading a little bit tired," said Scott Graham, head of government bond trading at BMO Capital Markets in Chicago.

"We heard of a large seller of two years, five years and 30-years coming into the market, and I think a lot of this is also setup for the five-year auction."

Graham said that while traders were keeping an eye on the latest news on the Greek debt crisis and European leaders' responses to it, they were most keenly aware of the coming Treasury auctions. Traders were on edge because the weakness of the two-year sale was unusual.

"For a two-year to actually tail just shows us there's a bit of a buyers' strike out there," he said.

A selloff in Treasuries on Monday brought yields to important technical levels and initially spurred some buying early Tuesday. But the direction of the market shifted, bringing lower prices and higher yields.

"We have had a significant steepening of the 10s-30s curve over the last couple of days, probably more than what was justified," said Anshul Pradhan, Treasury and inflation-linked strategist at Barclays Capital in New York.

Indeed, the 30-year bond was the only Treasury security still in positive price territory. Marty Mitchell, chief market technician at Stifel Nicolaus in Baltimore, said the 30-year yield was close to an important technical level which, if reached, would signal a more significant move toward higher yields.

"A close above 4.30 percent would signal a deeper correction in the market," he said.

The 30-year bond was up 3/32 in price and yielding 4.29 percent, down from 4.297 percent at Monday's close. The 10-year Treasury note lost 6/32 in price to yield 2.96 percent, up from Monday's close of 2.93 percent.

Five-year Treasury notes fell 6/32 in price to yield 1.50 percent, up from 1.45 percent late on Monday.

Copyright Reuters, 2011