TREASURIES-U.S. bonds edge up in Europe but gains fragile

Wed Feb 6, 2013 6:32am EST

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LONDON, Feb 6 (Reuters) - U.S. Treasury prices firmed in
Europe on Wednesday with market jitters about political tensions
in Italy and Spain propping up demand for low-risk assets.
    Investors were also keeping an eye on a weakening Japanese
yen, which prompted selling of long-dated hedges on debt
securities known as power reverse dual currency notes. That
weighed on Treasuries prices, pushing yields up.
    "There's no top-tier data in the U.S. and with no auctions
this week it looks like we're vulnerable to what's going on in
peripheral markets in Europe and in the FX market," a trader
said.
    "The market has been volatile. Trade is still jittery and
choppy. Europe opened on a firmer tone and Bunds have got a bit
of a bid so we're following suit but that's very near-term price
action."
    The 10-year T-note was last 5/32 higher in price to yield
1.987 percent, retreating from a 9-month peak of
2.059 percent marked intra-day on Monday.
    Benchmark 10-year notes have underperformed shorter-dated
maturities, steepening the yield curve, on recent signs of a
U.S. economic recovery and strength in equities, coupled with
the Federal Reserve's accommodative monetary policy.
    The 2-year/10-year yield spread stands at roughly 175 basis
points , having widened from about 151
basis points at the end of last year.
    "Quarterly funding today will show us which way issuance is
going to be biased ...but given the absence of major data this
week we'll take our cue from what's happening externally," said
RIA Capital Markets strategist Nick Stamenkovic. "Until we get
clearer signs of how the U.S. economy is performing Treasuries
are pretty rangebound."
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