Edge up on bargain hunting, Europe eyed

LONDON: Treasuries edged up in European trade on Thursday with benchmark bonds attracting buyers after yields backed up to 2 percent, as markets watched to see if European policymakers would make progress on measures to stem the euro zone debt crisis.

Treasuries were little changed after the German parliament passed a bill to give the region's EFSF rescue fund new powers, as widely expected, with sources telling Reuters the bill got majority backing from Chancellor Angela Merkel's ruling coalition.

Signs that Italy was still suffering contagion from the debt crisis after its borrowing costs at a 10-year debt auction rose to euro-era highs also helped flows into safe-haven government bonds.

Treasury note futures were up 4.32 at 129-51/64 while the benchmark 10-year T-note was about one basis point lower at 1.97 percent , having risen just above the psychologically key 2 percent level earlier.

"We got to some levels where we're going to start bringing in some real money interests," Craig Collins, a trader at Bank of Montreal in London, said.

"As we saw yesterday's five-year auction went very well. Five-year note (yields) at 1 percent look attractive, seven-year notes at 1.5 percent are attractive and 10-year notes at 2 percent are pretty attractive," he said.

Seven-year T-notes last yielded 1.467 percent , slightly up from late New York levels before an auction of $29 billion of seven-year debt.

Treasury auctions of $35.0 billion in two-year notes and $35.0 billion in five-year notes, on Tuesday and Wednesday respectively, were well received.

The scope for further falls in Treasuries was seen limited as focus remains on the euro zone, with investors keen to see what progress policymakers can make on steps to contain the bloc's debt crisis.

"I don't think fives and 10-years above 1 and 2 percent is something the market is OK with. They are not too bad entry opportunities, as only hopes on measures to the debt crisis have been raised (rather than a solution agreed)," Commerzbank strategist David Schnautz said.

Treasuries showed limited reaction to comments by US Federal Reserve Chairman Ben Bernanke, who said on Wednesday the central bank might need to ease monetary policy further if inflation or inflation expectations fall significantly.

Copyright Reuters, 2011