TREASURIES-U.S. bonds slip but Cyprus bailout jitters linger

SINGAPORE, March 19 Tue Mar 19, 2013 12:10am EDT

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SINGAPORE, March 19 (Reuters) - U.S. 10-year Treasuries slipped in Asia on Tuesday, but losses were limited as investors remained concerned about a plan to tax bank deposits in Cyprus to help pay for the country's bailout.

* Breaking with previous European Union practice that depositors' savings are sacrosanct, Cyprus and international lenders agreed at the weekend that savers in the island's outsized banking system would take a hit in return for an offer of 10 billion euros ($13 billion) in aid.

Ahead of a parliamentary vote on Tuesday that will either secure the island's financial rescue or threaten default, euro zone ministers urged Cyprus to let smaller savers escape the proposed levy on bank deposits.

Although European officials have said the measure is a one-off for a country that accounts for just 0.2 percent of European output, the rescue plan has raised fears that it could set a precedent for future euro zone bailouts and destabilise the region's financial system.

* Ten-year Treasuries slipped 1/32 in price to yield roughly 1.958 percent, little changed from late U.S. trade. The 10-year yield had touched a 1-1/2 week low near 1.90 percent on Monday.

* "I think there are only negative implications for those euro zone countries and banks that are considered to be relatively weak," said Tomohisa Fujiki, interest rate strategist for BNP Paribas in Tokyo, referring to the bailout plan for Cyprus.

Such concerns may help support Treasuries in the near term, he said.

Other supportive factors for Treasuries include ongoing worries about political instability in Italy in the wake of last month's deadlocked election, and concerns about the potential economic impact of $85 billion in U.S. government spending cuts that began on March 1, Fujiki added.

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