TREASURIES-Bonds fall on profit-taking as worries linger
* Investors book profits before $99 bln in supply * Greece, Spain crisis worries underpin prices * Benchmark yields fall for 9th straight week; longest slide since 1998 * Unwind of curve "steepener" bets spur bond rally By Richard Leong NEW YORK, May 18 (Reuters) - U.S. Treasuries prices slipped on Friday as investors took profits a day after benchmark yields flirted with their lowest level in at least 60 years as anxiety over the euro zone debt crisis fueled this week's rally of safe-haven bonds. Despite Friday's modest pullback, benchmark 10-year Treasury note yields fell for a ninth consecutive week, matching a streak last seen in 1998, according to Reuters data. "We are at levels where most people would like to go short, but they can't because of Europe," said Chuck Retzky, director of futures sales at Mizuho Securities USA in Chicago. Investors bought Treasuries, German Bunds and other low-risk assets this week as Greece's political turmoil and deterioration of the Spanish banking system fueled worries that their financial problems could engulf the region and spiral into a global financial crisis. Major stock indexes were on track to post their worst week of the year with the Standard & Poor's 500 falling 4.3 percent on the week. "Sentiments are still pretty negative," said Francis Rodilosso, portfolio manager with Market Vectors in New York. "People are definitely seeing the glass half-empty." Fears over a possible Greek exit from the euro zone grew after news on Friday that German Chancellor Angela Merkel had discussed with Greek President Karolos Papoulias whether his country should hold a referendum on staying in the euro. The idea was vehemently rejected by Greece's two biggest parties. Fitch on Thursday downgraded Greece deeper into junk territory, citing the risk that it might leave the euro zone. U.S. 10-year Treasury notes last traded down 10/32 in price at 100-7/32 to yield 1.72 percent, up 3 basis points from Thursday. The 10-year yield finished at 1.69 percent on Thursday, the lowest closing level in at least 60 years, according to Tradeweb. Thirty-year bonds last traded down 18/32 at 103-27/32 to yield 2.81 percent, up 3 basis points on the day. The yield touched its lowest level in five months on Thursday. In the futures market, the June 10-year T-note closed down 2/32 at 133-23/32 after touching a contract high of 133-27/32 earlier. HOPE FOR MORE CENTRAL BANK AID Jitters about Europe's fiscal woes disrupting the global economy again also supported the notion the U.S. Federal Reserve and the European Central Bank would soon introduce more monetary stimulus, investors said. "The market is pricing in more unconventional measures," said Bill Irving, who oversees about $40 billion at Fidelity Investments in Boston. This view of further measures from the Fed and ECB spurred a liquidation of earlier "steepener" bets that involved purchases of short-dated Treasuries and sales of long-dated issues on the view of an improving global economy. "People got stopped out of steepeners. They were forced to sell the short end and buy the long end," Irving added. Short-dated Treasuries lagged their intermediate- and long-dated counterparts whose yields fell on the week. Two- and three-year yields rose about 4 basis points and 5 basis points, respectively, from last year. A stampede out of "steepener" trades flattened the yield curve. The spread between five- and 30-year Treasury yields ended the week at 2.05 percent, closed at its flattest level since late December, while the spread between two- and 10-year yields ended at 1.43 percent after flirting with its flattest level since December 2008 on Thursday. "This week we saw a vicious short-covering rally," said Mizuho's Retzky. "The scope of it caught a lot of people offside." The latest data from the Commodity Futures Trading Commission released late Friday supported the view that exit of bets against Treasuries fueled this week's rise in longer-dated bond prices. Speculative "short" bets that Treasury prices will fall earlier this week outnumbered "long" bets that prices will rise by a ratio of roughly 2 to 1. The CFTC's Commitments of Traders report showed speculators took 354,260 contracts in short positions in 10-year Treasury futures contracts, compared with 190,868 contracts in long positions in 10-year T-notes.
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