LONDON: US Treasuries fell in Europe on Wednesday after Spain avoided a ratings downgrade by Moody's into non-investment grade, cooling demand for safe-haven government debt.
Moody's Investor Service confirmed Spain's Baa3 rating, giving the recession-hit country a reprieve from a downgrade that would have taken it into "junk' territory that would have driven Spain out of some bond indexes and prompting selling by investors who track them.
Growing expectations that Spain will ask for aid next month that would trigger European Central Bank bond purchases and upbeat US corporate earnings have dulled the allure of low-risk Treasuries and boosted equity markets in recent days.
US 10-year T-note yields were last at 1.74 percent, 2 basis points up on levels in late US trading on Tuesday while T-note futures were down 7/32 at 132-21/32.
"The fact that Moody's didn't cut Spain to junk was positive for risk markets and the bid tone that's been in the (Treasury) market is fading now," a trader said.
"There has been some significant selling that's went on in Asia and now in London. The market is trading a bit heavier and we'll probably see (10-year) yields back up to the 1.80 percent level and maybe up to 1.83-84 in coming days," the trader said.
Yields on 30-year Treasuries rose to 2.94 percent from 2.90 in late New York trading.
US debt prices fell on Tuesday after strong earnings from Goldman Sachs and talk of EU aid for Spain prompted investors to pick up riskier assets such as equities.
Some market participants, however, expected benchmark yields to remain hemmed in the 1.55-1.9 percent range they have been trading in since August.
"US earnings have been better than some expected, but the outlook for the US economy is still unclear, so benchmark bonds haven't moved out of this month's range, even with the risk rally," said a fixed-income fund manager at a Japanese asset management firm.
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