TREASURIES-U.S. bonds steady in Europe before debt sales

Tue Feb 12, 2013 6:33am EST

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LONDON, Feb 12 (Reuters) - U.S. Treasuries were steady on
Tuesday, with selling ahead of debt auctions offset by concerns
about the lack of a deal to avert spending cuts in the United
States and rising political risks in Europe.
    Traders said some investors were making room in their books
before sales of $72 billion in new debt this week, including $32
billion in three-year notes on Tuesday, $24 billion in 10-year
notes on Wednesday and $16 billion in 30-year bonds on Thursday.
    Others, though, were buying Treasuries as a safe haven. 
    In the United States, a deal is yet to be reached to avoid
the so-called "sequestration" spending cuts that would enter
into force next month if no deal is reached on raising the debt
limit.
    Investors will watch President Barack Obama's State of the
Union speech later on Tuesday for clues on whether Republicans
and Democrats can reach a budget compromise any time soon.
    In Spain, investors fear a corruption scandal surrounding
the ruling party could hit the government's already falling
popularity ratings and hurt its ability to enforce further
structural reforms.
    In Italy, the rise in opinion polls of former Prime Minister
Silvio Berlusconi's party ahead of this month's election raises
concerns of a fragmented parliament that could hinder the reform
efforts of the next government.
    U.S. benchmark 10-year T-note yields were 0.7
basis points higher on the day at 1.9716 percent, while T-note
futures were 4/32 lower at 131-17/32.
    "Everybody is concerned by the sequestration and they will
be looking for any clues on that in the State of the Union,"
said Philip Marey, strategist at Rabobank. "Also ... there's
this scandal in Spain and the elections in Italy," he said about
the factors keeping U.S. bonds well bid before the debt sales.
    Lloyds strategists said the three-year debt auction on
Tuesday should see strong demand due to "core yields trading
towards the top end of the range, coupled with coupons and
redemptions totaling $97.7 billion this week and ongoing
uncertainty around peripheral countries."
    Treasuries shrugged off news that North Korea had conducted
a nuclear test as Pyongyang had said last month it was going to
carry it out.
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