TREASURIES-Greek, Spain concerns support U.S. bonds

LONDON Tue Oct 9, 2012 5:27am EDT

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LONDON Oct 9 (Reuters) - U.S. Treasuries pushed higher on Tuesday on concerns about Greece's ability to keep international bailout payments flowing and how long Spain will wait to trigger European Central Bank buying of its bonds.

* The market had fallen on Friday due to an unexpected fall in the U.S. unemployment rate but the upward momentum was likely to be capped as traders push for cheaper prices before $66 billion of debt auctions later this week.

* The International Monetary Fund, one of Greece's main lenders, said in a report on Tuesday that Athens would miss the five-year debt reduction target that is one of the conditions for the country's 130 billion euro bailout.

* The IMF forecast weighed on equities and supported Treasuries and German government bonds, as did doubts over when Spain may ask for aid to trigger ECB intervention to lower its borrowing costs after euro finance ministers said on Monday such aid was not needed for now.

* "The main driver for the market is the IMF report on Greece and they also have a more negative view on Spain which raises questions about whether the budget deficit targets for next year will be achieved," said RIA Capital Markets strategist Nick Stamenkovic.

* "That's unnerved investors and is putting pressure on equities and supporting Treasuries and Bunds but we seem to be stuck in a narrow trading range with no real direction to markets at the moment," he said.

* U.S. 10-year T-notes were last 11/32 up in price to yield 1.696 percent, 4 basis points down from late New York trade on Friday. The U.S. bond market was closed on Monday for the Columbus Day holiday although the stock market remained open.

* The 10-year yield had hit a peak around 1.74 percent on Friday, the highest in about two weeks, after the U.S. unemployment rate fell to 7.8 percent in September, the lowest level since January 2009.

* "Lower equities, and the negative headlines on Greece are adding to the risk-off tone but there's no chance of the (Treasuries) market running away from here," a trader said.

* "I wouldn't chase the market here ahead of auctions. It's looking a little rich going into the New York open and I would look for yields to go up a little before the auctions," he added.

* The Treasury will auction three- and 10-year notes as well as 30-year bonds this week.

* The 30-year T-bond yielded 2.93 percent, 4 bps down on the day and after having rise as high as 2.97 percent on Friday, its highest since Sept. 21.

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