TREASURIES-U.S. debt prices dip, but rally seen resuming

LONDON, April 8 Mon Apr 8, 2013 5:14am EDT

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LONDON, April 8 (Reuters) - U.S. Treasury prices edged lower on Monday as the recent rally prompted some to take profits but Asian demand, fuelled by a hunt for higher-yielding bonds in the wake of Japan's stimulus attempts, was expected to resume.

Benchmark 10-year yields rose 1 basis point to 1.72 percent on Friday with traders citing some profit taking and technical-induced buying after yields hit their lowest levels of 2013 at 1.677 percent on Friday.

Demand for U.S. debt has risen sharply in recent sessions after the Bank of Japan unveiled a mammoth bond buying plan designed to stimulate Japan's moribund economy.

"Is the pull back today going to be that deep? No, I don't think so," a trader said adding he expected yields to begin falling again when U.S. market participants started arriving at their desks later in the day.

"The reality is that the BoJ actions are the winner here. Their commitment is huge and the Japanese investor base will need to get out of JGBs as the yield goes lower. They'll have to sell their yen and go and buy U.S. Treasuries."

Ten-year Japanese government bonds (JGBs) last yielded 0.53 percent, with strategists suggesting the bond-buying operations that started on Monday could eventually push yields as low as 0.2 percent, making U.S. debt relatively more attractive.

Technical charts showed that a drop in U.S. yields could accelerate on any breach of 1.648 percent -- the 61.8 percent Fibonacci retracement of the rise in yields seen between July 2012 and March 2013.

"Should the 1.6480 (Fibonacci retracement) be eroded this will introduce scope to the 1.55/1.5280, the November 2012 low and 78.6 percent retracement," Commerzbank technical analyst Karen Jones said in a note.

"This is regarded as the last defence for the 1.3750 July 2012 low." (Reporting by William James/editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)

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