LONDON: US government bonds fell in Europe on Thursday after a stronger than expected Spanish debt auction, but underlying demand for Treasuries was expected to remain strong due to many unsolved euro zone debt problems.
Spain sold double the maximum target amount of three- and four-year paper at its first bond auction of the year, with yields falling sharply from the previous sale and demand boosted by recent European Central Bank liquidity injections.
Yields also halved at an Italian T-bill auction. The sales were taken as an encouraging sign for the 2012 funding quest of the two countries most exposed to an escalation of the euro zone debt crisis.
Analysts say another bout of risk aversion could be on the cards as Greece comes back into focus. Senior European bankers said on Wednesday talks about private sector creditors paying for part of a second Greek bailout are going badly.
At 1050 GMT, T-note futures were 9/64 lower at 131-02/32, with benchmark 10-year cash yields 1.7 basis points higher at 1.9228 percent.
"We've seen slightly better sentiment in peripheral markets in Europe because of the supply reception," said Nick Stamenkovic, bond strategist at RIA Capital Markets.
He added that retail sales and jobless claims data later in the day should provide further signs that the US economic recovery was gaining traction, but said safe-haven bids for Treasuries should continue regardless.
"Until we see a solution to the euro debt crisis it is difficult to see Treasuries breaking down the recent range."
The US Treasury will sell $13 billion of re-opened 30-year bonds in an auction later on Thursday and the sale is expected to go smoothly, in line with recent auctions.
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