Fall in Europe on hopes for US jobs package

LONDON: US benchmark T-note yields bounced above 2 percent in Europe on Wednesday following news that President Barrack Obama will unveil a $300 billion jobs package, but the move may prove temporary as markets remain broadly wary of risk.

CNN reported on Wednesday, citing Democratic sources, that Obama plans to lay out the job-creation package on Thursday.

The ultra-long 30-year sector underperformed, reversing some of the gains made on bets that the Federal Reserve would soon launch Operation Twist. That would involve selling short-dated paper and buying long-dated bonds to drive down longer-term borrowing costs for businesses.

T-note futures fell 13/32 to 129-57/64, while 10-year yields were up 6.1 basis points at 2.0429 percent. The 30-year notes yielded 3.3448 percent, up 7.4 bps on the day.

"Clearly any hopes of stimulus, whether it's monetary or fiscal, help stock markets at the margin," said Nick Stamenkovic, bond strategist at RIA Capital Markets.

"But there is no guarantee that Obama's proposal gets through the houses ... and the bottom line is that until we see a decisive improvement in the US economic prospects, or we see signs of an improving policy environment in the euro land, Treasuries will remain underpinned."

The German Constitutional Court rejected in a landmark ruling on Wednesday lawsuits against the Greek bail out, briefly causing more losses for Treasuries.

But Greece's second bailout still faces a flurry of obstacles -- the country is off track with its fiscal targets, Finland is demanding collateral to back its aid contribution, there are concerns over the level of participation in a debt swap this month and there is growing political opposition in paymaster Germany.

Copyright Reuters, 2011