LONDON: US government bond prices were little changed in Europe on Tuesday, with pressure from looming supply offsetting concerns that the euro zone debt crisis may spiral out of control.
A US bipartisan deficit-reduction committee abandoned a three-month effort to find $1.2 trillion in budget cuts on Monday, but both Standard & Poor's and Moody's said failure to agree on a plan would not in itself trigger a ratings downgrade.
Fitch repeated that a failure by a US congressional committee to reach agreement on how to cut the country's deficit would likely result in a negative rating action -- most likely a revision of the rating outlook to negative.
Traders said the outcome was expected and had little immediate impact on markets. The euro zone debt crisis is likely to remain the main driver in the near-term.
The Treasury is auctioning a total of $99 billion in two-, five- and seven-year notes in the first three days of the week ahead of Thursday's Thanksgiving holiday. Monday's sale of $35 billion of two-year notes US2YT=RR met solid demand.
"We do have a five-year auction ... and Treasuries are going to move a bit higher in yield into that, but the bigger picture is still buying dips after the auctions are out of the way," one trader said. "We also have GDP (data) later but credit is the concern now."
At 0930 GMT, T-note futures were 3/64 lower at 130-17/32. Ten-year T-note yields were flat at 1.9756 percent. Prices bounced off European session lows, tracking Bunds.
While not expecting a sell-off in Treasuries after any ratings downgrade, Lloyds strategists see long-dated US notes underperforming similar dated Gilts as the UK paper will be seen as a slightly better asset on long-term fiscal fundamentals.
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