TREASURIES-U.S. bond prices dip before 2-year auction

Tue Mar 26, 2013 11:03am EDT

Related Topics

* Cyprus concerns fade, paring safety bids for bonds
    * Solid data support view of slow, steady U.S. growth
    * Sturdy demand seen for $35 bln in two-year note supply
    * U.S. Fed to buy $2.75 bln-$3.50 bln in government debt


    By Richard Leong
    NEW YORK, March 26 (Reuters) - U.S. government debt prices
fell on Tuesday as traders trimmed their bond holdings amid
reduced anxiety over Cyprus' banking woes ahead of a $35 billion
auction of two-year note supply.
    The latest data on domestic home prices and durable goods
orders supported a notion that the U.S. economic recovery
remained on track, but steeper-than-expected drops in consumer
confidence and new home sales undercut hopes that the pace of
growth was accelerating.
    "It's a combination of different things. The immediate
threat from Cyprus has faded. The data have been pretty solid,"
said John Brady, managing director of interest rate futures
sales at R.J. O'Brien & Associates in Chicago.
    Benchmark 10-year yields retraced from their
two-week lows set last week on diminished fears over Cyprus'
banking system since the island nation obtained a 10 billion
euro ($13 billion) international bailout this past weekend. 
     
     
    Ten-year yields, however, have stayed below 2 percent on
some safe-haven demand for bonds in the wake of comments from
Jeroen Dijsselbloem, the head of the Eurogroup of finance
ministers, who said on Monday that a Cypriot bailout - which
wiped out some senior bank bondholders and will impose big
losses on large depositors - will serve as a model for resolving
euro zone banking problems. 
    He later appeared to backtrack, saying Cyprus was a specific
case with exceptional challenges including vast deposits from
Russian overseas investors, but analysts said this "bail-in"
solution, which would hurt investors and savers, could cause a
possible bank run across the euro zone. 
    The latest flare-up in the festering euro zone debt crisis,
together with the Federal Reserve's commitment to hold down
interest rates, should feed bids at the two-year auction at 1:00
p.m. (1700 GMT), part of this week's $99 billion in regular
coupon-bearing supply, analysts said.
    In the when-issued market, traders expected the upcoming
two-year note supply to yield 0.2630 percent,
higher than the 0.257 percent yield on the two-year issue sold
at the February refunding.
    On the open market, the 10-year Treasury note 
last traded down 3/32 in price for a yield of 1.928 percent, up
0.8 basis points from late on Monday.
    The 30-year bond was 4/32 lower in price,
yielding 3.151 percent, up half a basis point from Monday's
close.
    The U.S. central bank planned to buy $2.75 billion to $3.50
billion in Treasuries due in May 2020 to Feb. 2023 at 11:00 a.m.
(1500 GMT), which is part of its ongoing bond purchases in a bid
to hold down long-term interest rates to help the economy.
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