TREASURIES-Bonds slip ahead of 3-year note sale
* Investors, dealers pare bonds before supply * Europe's woes rein in bond market sell-off * Three-year supply seen fetching solid demand By Richard Leong NEW YORK, June 12 (Reuters) - U.S. Treasuries prices fell on Tuesday, as investors and dealers pared their government bond holdings in advance of a three-year note auction, which is part of this week's $66 billion of federal debt supply. A higher open on Wall Street stocks exacerbated the selling in Treasuries especially the 30-year bond, which was down more than 1 point in early trading. "While this is a market that is very risk averse, we should see an auction set-up," said Carl Lantz, chief U.S. interest rate strategist at Credit Suisse in New York. Investors and bond dealers typically sell part of their holdings of Treasuries before an auction to make room for new supply. Another motivation to sell is to see if they can drive the bonds down enough in price so that Treasuries will be cheaper to buy at auction. The bond market sell-off was tempered by demand for safe-haven Treasuries on contagion worries about the euro zone crisis even after a 100 billion euro ($125 billion) bailout of cash-strapped Spanish banks this past weekend. Concerns over the rising long-term costs to fix the fiscal and debt problems in the region stoked selling of all euro zone sovereign debt including German Bunds, analysts said. The most pressing issue for investors is this Sunday's Greek national election and whether a coalition that is against the terms on its recent EU/IMF bailout may win. Such an outcome could intensify the risk of Greece's exit from the euro zone, deepening the euro zone debt crisis, analysts said. "Whether Greece will fall out of the euro zone membership is still possible. What is the contagion effect?," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York. Benchmark 10-year Treasury notes were last 15/32 lower in price, yielding 1.63 percent, up 4 basis points from Monday's close. The 10-year yield is 19 basis points above its historic low set on June 1. The 30-year bond was last down 1-6/32 to yield 2.75 percent, up 5 basis points from late Monday. The 30-year yield is 24 basis points above the record low set on June 1. In "when-issued" trading, traders expected the three-year note issue for sale later Tuesday at 1 p.m. (1700 GMT) to fetch a yield of 0.3780 percent. This would be above the record auction low yield of 0.334 percent recorded in Sept 2011. Analysts and traders anticipate solid demand for the latest three-year issue as investors sought low-risk assets given the financial turmoil in Europe. "I don't see any problems with the digestion of the three-years," Milstein said.
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