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.