NEW YORK: US Treasuries prices retreated on Tuesday as US stock market gains and a better-than-expected bid for a Spanish short-term debt auction curbed the bid for safe-haven US government debt.
US Treasuries prices rose on Monday when the euro zone crisis seemed to heat up after the yield on Spain's key 10-year debt rose to a five month high above 6 percent, a level seen as unsustainable.
But on Tuesday, a good reception for a Spanish debt auction spelled relief. Spain sold a more-than-planned 3.2 billion euros ($4.2 billion) of 12- and 18-month bills, drawing good demand from domestic banks. Yields rose sharply as expected.
The result knocked safe-haven German Bunds off their highs and sent US debt prices lower.
The better auction results encouraged a risk on trade and US stocks advanced, aided by corporate earnings results.
But losses in the Treasury market were modest. Nervousness remains ahead of a longer-term Spanish bond auction on Thursday since Spain is seen as the potential new source of contagion in the euro zone debt crisis.
"We have a 10-year note auction on Thursday in Spain and that will be very important," said Wilmer Stith, a portfolio manager of Wilmington Trust Broad Market Bond Fund, part of Wilmington Trust Investment Advisors with about $15 billion in assets under management. "Spanish yields are below 6 percent which is somewhat encouraging going into Thursday's auction."
With the ECB focused on fiscal discipline, sovereign debt and financial strains in the euro zone will likely to be a long-term player in market concerns.
German Finance Minister Wolfgang Schaeuble offered encouraging words to Spain, saying it was delivering on economic reforms and will not require a Greek-style bailout.
In the United States, Stith said last week's disappointing US payrolls growth continued to hold US interest rates captive at low levels and support Treasuries.
The market will focus on Thursday's jobless claims report, but visibility on job growth might not get clearer until the following week's report when some of the cloudiness from recent holidays is removed.
"That leaves us vulnerable to lower yields in 5s, 10s and 30-years because the market is really focused, as it should be, on US job creation," Stith said. "There's no way to get growth or momentum in aggregate demand without job creation and income creation," he said.
The modest improvements in the US jobs market contrast with Spain's overall unemployment rate of 22.9 percent, according to its National Statistics Institute, with youth unemployment near 50 percent.
Treasuries briefly shaved some losses after the US government reported fewer than forecast US housing starts for March. The Federal Reserve's report that US industrial production was flat in March, held back by some cooling in manufacturing activity, elicited little market reaction.
In late morning trade, the benchmark 10-year Treasury note was down 7/32, to yield 2.01 percent.
While groundbreaking on US homes fell unexpectedly in March, permits for future construction rose to their highest level in 3 1/2 years, Commerce Department data showed.
Two-year US government bond yields were unchanged at 0.28 percent, while the 30-year bond fell 11/32, its yield rising to 3.15 percent.
T-note futures were last down 10/32 on the day at 131.12/32, while cash 10-year yields were down 8/32, their yields rising to 2.01 percent.
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