TREASURIES-Treasuries see selloff ahead of 10-year auction
* Traders preparing for $21 bln 10-year note auction
* Slovakia EFSF vote could come Thursday, hopes high
* Global stocks rally spurs more selling in Treasuries
NEW YORK, Oct 12 (Reuters) - Treasury prices fell on Wednesday as global stocks rallied on hopes that Europe's financial crisis could soon be contained, while traders sold off Treasuries in preparation for a $21 billion auction of 10-year notes.
The 30-year Treasury bond saw the heaviest selling, losing two points in price in early trading. Yields on 10-year notes were at their highest since Sept 1, while 30-year yields returned to highs last seen Sept. 21.
Optimism appeared strong among market participants that European leaders would move to recapitalize struggling euro zone banks and would also succeed in expanding the European Financial Stability Fund. Slovakia is the only one of the 17 euro zone countries that must still approve the expansion of the EFSF, in a vote that could come as early as Thursday.
George Goncalves, head of U.S. rates strategy at Nomura Securities in New York, said higher hopes for Europe and better U.S. economic data have "led to an overall risk-positive theme for US markets."
That atmosphere was fueling selling in the Treasury market.
"We look for consolidation in the near term," Goncalves wrote in a note to clients.
William O'Donnell, head of U.S. rates strategy at RBS Securities in Stamford, Connecticut, said in a note to clients he saw several technical indicators for continued selling in Treasuries, especially in longer-dated securities. He pointed to bearish weekly momentum in 10s and 30s, and a break above the bull rate trendline on Tuesday by the 30-year yield.
"Long term Treasuries are at serious risk of surprising the crowd (me too) with the magnitude of ongoing back-up," O'Donnell wrote.
That sentiment could create some confusion around Wednesday's auction. The Treasury Department will sell $21 billion in reopened 10-year notes at 1 p.m. (1700 GMT).
While selling ahead of an auction usually bodes well for demand at the auction, a widespread belief that yields are still too low could cause potential bidders to hang back.
Last month's 10-year auction drew the lowest yield ever, at 2 percent. Wednesday morning's trading brought 10-year yields to 2.22 percent, more the 20 basis points higher. Ten-year notes were last off 21/32 in price.
The 30-year bond was down two points in price and yielding 3.20 percent, up from 3.10 percent at Tuesday's close.