LONDON: US Treasuries steadied in Europe on Wednesday, pausing after a sharp sell-off the previous day, and may find it hard to make gains while investor expectations remain high that policymakers will intervene to try to solve the euro zone debt crisis.
Yields on US Treasuries have moved away from historic lows hit on July 25 since US jobs data beat forecasts last Friday, while demand for safe-haven bonds has also lessened with markets expecting the European Central Bank to stand by its pledge to defend the euro.
Benchmark 10-year Treasury yields were 1.5 basis points lower at 1.61 percent, after hitting one-month highs overnight, with T-note futures 3/32 higher at 133-43/64.
The Treasury Department will sell $24 billion of 10-year notes at 1700 GMT and $16 billion of 30-year bonds on Thursday to meet its quarterly refunding needs. Before that Germany will sell 4 billion euros of 10-year bonds.
"We have a 10-year auction tonight, which will keep a lid on things but if the German sale goes well we could see a bit of a rally that will also give Treasuries a lift," a trader said. "We've had quite a sell-off over the last few days so we may be due a bit of a bounce."
Ten-year yields hit a record low of 1.38 percent in late July and are expected to stay relatively low in historic terms while there is so much uncertainty over the health of the US economy and future of the euro zone.
Although the ECB has outlined plans to buy sovereign debt alongside the euro zone's bailout funds, it will not happen before September and not unless either Spain or Italy first ask to access the funds, something that will involve submitting to strict supervision.
"Anecdotal evidence suggests that poor liquidity conditions go some way in explaining the size of market swings," Lloyds Bank strategists said in a research note. "Broader-based market jitters are likely to re-emerge going into September but markets might have locked themselves into a range until then."
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