TREASURIES-T-notes dip after German data, rebound seen unlikely

LONDON Fri Feb 22, 2013 5:33am EST

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LONDON Feb 22 (Reuters) - U.S. Treasuries dipped on Friday after German data beat forecasts and Europe was likely to dominate sentiment for much of the day with investors awaiting figures on banks' early repayments of ECB loans.

Treasury futures fell 4/32 to 131-43/64, giving back some of the gains made earlier this week, although 10-year yields remained below the closely watched 2 percent barrier.

Traders cited a small increase in selling pressure after the release of the German Ifo sentiment survey, which beat forecasts and tempered some of the gloom of downbeat data elsewhere in the euro zone earlier this week.

Treasuries were seen struggling to regain losses throughout the remainder of the session, with many viewing current prices as high, even with the prospect of enforced U.S. government spending cuts beginning to bite next week.

"A lot of people are looking at the March 1 cuts deadline but I'm not necessarily sure that's going to help the market rally significantly from here - we're below 2 percent right now and these are lofty levels for Treasuries," a trader said.

UBS Technical charts also showed resistance to further price rises with Treasury futures struggling to break the 38 percent retracement of the December to February selloff which stands at 131-63/64.

"This must be broken to trigger a more extended recovery," said UBS's Richard Adcock, who recommended selling the contract at 131-24/32 with a view to buying back at 130-20/32.

Shorter-dated U.S. bonds could suffer later in the session if data shows banks opted to repay a large amount of emergency loans from the European Central Bank ahead of schedule. That would spur expectations of higher money market rates in the euro zone, which would have a wide-reaching impact.

"If we do get a big number, the selloff in the front end of the curve will spill over into the U.S. ... The market is expecting between 125 and 150 billion (euros). If it's significantly larger than that, I'd expect pressure on the curve," the trader said.

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