TREASURIES-U.S. bonds rise in Europe on Spain uncertainty

LONDON, Sept 26 Wed Sep 26, 2012 6:17am EDT

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LONDON, Sept 26 (Reuters) - U.S. government bonds rose in Europe on Wednesday as investors favoured safe haven assets because of rising uncertainty over whether Spain will ask for a bailout any time soon.

* Spanish Prime Minister Mariano Rajoy told the Wall Street Journal he was ready to seek a rescue package, but only if financing costs remained too high for too long.

* With growing anti-austerity demonstrations, Rajoy was set to presents more painful economic reforms and a tough 2013 budget on Thursday, aiming to persuade euro zone partners and investors Spain was doing its deficit-cutting homework despite recession and 25 percent unemployment.

* U.S. 10-year T-note yields were 1.9 basis points lower at 1.6525 percent at 0958 GMT. T-note futures were 11/64 higher at 133-11/32.

* "He (Rajoy) may say one thing but do you necessarily believe him? I do not think markets believe him ... We could breach 1.50 percent and maybe test lows (in 10-year yields) going into the end of the year," one trader said.

* A weak German 10-year bond auction was not enough to curb appetite for safe-haven debt. {ID:nEAP50MQ86]

* In the United States, the Treasury will sell $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday. An auction of $35 billion in two-year notes on Tuesday garnered solid demand in line with expectations, pricing at a high yield of 0.273 percent.

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