TREASURIES-Prices gain as Cyprus comments spark worry over banks

Mon Mar 25, 2013 3:25pm EDT

Related Topics

* Eurogroup official says Cyprus deal could be template
    * Benchmark yields drop to 1.90 pct, low end of range
    * U.S. to sell $99 billion coupon-bearing supply
    * U.S. Fed buys $1.46 bln bln bonds due 2036 to 2043


    By Karen Brettell
    NEW YORK, March 25 (Reuters) - U.S. Treasuries prices rose
on safety buying after the head of the Eurogroup of finance
ministers said that Cyprus's bailout deal may be a template on
how to resolve  high bank debt in other countries in the region,
raising concerns about potential bank runs.
    While Cyprus's bailout overnight calmed some fears about the
festering euro zone debt crisis, traders remained wary about
fiscal problems in Spain and Italy whose economies and banking
systems are many times larger than the banking system in Cyprus.
    Dutch Finance Minister Jeroen Dijsselbloem said in an
interview with Reuters and the Financial Times that three years
of governments and taxpayers bearing the costs and providing the
back stop had to stop. 
    "The Dutch finance minister has made an issue that was
specific to Cyprus systemic, by saying it would be a template
for future restructurings," said Richard Gilhooly, interest rate
strategist at TD Securities in New York.
    Cyprus reached a last-ditch deal with international lenders
to avoid an economic meltdown by agreeing to close down its
second-largest bank and inflict heavy losses on bondholders and
big depositors.
    Treasuries pared price gains later in the afternoon after
the Eurogroup said in a statement that Cyprus is a specific case
and that it doesn't use models or templates in programs for each
country in the region.
    Benchmark 10-year Treasuries were last up 7/32
in price to yield 1.91 percent, up from a low of 1.90 percent.
The debt's yields earlier rose as high as 1.97 percent on
optimism over the Cyprus agreement.
    "There's fear they are going after the depositors. The
market thinks this is the wrong approach. This could cause a
significant problem for banks," Larry Milstein, head of
government and agency trading at R.W. Pressprich & Co. in New
York.
    Thirty-year bonds rose 13/32 in price to yield
3.14 percent, after earlier rising as high as 3.19 percent.
    
    SUPPLY IN SHORTENED WEEK
    The week's $99 billion in longer-dated Treasury supply and
any encouraging domestic economic data may exert some downward
pressure on the bond prices with moves exaggerated by a
shortened trading week ahead of the Good Friday holiday,
analysts and traders said.
    The U.S. Treasury Department will kick off the week's supply
with a $35 billion auction of two-year notes on
Tuesday; a $35 billion sale of five-year debt on 
Wednesday and $29 billion auction of seven-year notes
 on Thursday.
    The U.S. bond market will close at 2 p.m. (1800 GMT) on
Thursday and shut for the Good Friday holiday.
    Supply-related selling should be mitigated by buying from
fund managers for quarter-end rebalancing and four purchase
operations from the Federal Reserve this week, analysts said.
    The U.S. central bank bought $1.46 billion in government
debt due in Feb. 2036 to Feb. 2043 at 11 a.m..
    Moreover, the Fed's affirmation of its commitment to hold
short-term interest rates near zero after its policy meeting
last week will limit the rise in Treasury yields.
    "Status quo will reign over the next few months," said Tom
Graff, portfolio manager at Brown Advisory in Baltimore.
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