TREASURIES-U.S. bonds steady after Spanish downgrade

LONDON Thu Oct 11, 2012 4:43am EDT

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LONDON Oct 11 (Reuters) - U.S. Treasuries held steady in Europe on Thursday, underpinned by a downgrade of Spain's credit rating, but gains were capped before a 30-year bond auction and a slew of economic data.

* Standard & Poor's cut Spain's ratings to one notch above "junk" status, bringing it in line with peer Moody's, which is yet to conclude its own review this month, and piling on pressure on Madrid to seek a bailout.

* Treasuries have rallied this week on growing investor concerns over the health of the global economy and earnings downgrades that pushed Wall Street shares to one-month lows on Wednesday. That spurred solid demand at a 10-year U.S. treasury note auction.

* "The guys were focusing on the Moody's review so S&P took the market a little bit by surprise. The (Treasury) market rallied on that late yesterday and we're holding that bid today with (German) Bunds catching up," a trader said.

* "But we have the 30-year auction and weekly jobless numbers later today and PPI data tomorrow ... that could throw a bit of volatility into the mix," he said.

* The yield on 10-year notes stood at 1.68 percent , little changed from the previous U.S. close, but near its lowest level since Friday after the strong 10-year auction results triggered a wave of short covering.

* The Treasury will auction $13 billion worth of 30-year bonds later in the day, the last leg of this week's $66 billion coupon-bearing offerings.

* The 30-year T-bond was slightly lower in price to yield 2.89 percent, around late New York levels on Wednesday.

* "If today's 30-year bond auction turns out to be strong just like yesterday's 10-year auction, the market is likely to advance further," said Tomoaki Shishido, fixed income analyst at Nomura Securities.

* Some market players are also looking to the U.S. vice presidential debate later in the day as President Barack Obama's victory in next month's election, once almost taken for granted in markets, is coming into question after his weak performance in last week's debate between the presidential candidates.

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