TREASURIES-Prices fall as Ukraine crisis abates, erasing Monday's gains

Tue Mar 4, 2014 10:21am EST

Related Topics

* A respite in the Ukraine crisis pressures prices

* 10-year yields could face support at 2.77 percent

* Fed to buy $1 bln- $1.25 bln in debt maturing in 2036-2044

By Marina Lopes

NEW YORK, March 4 (Reuters) - U.S. Treasury debt prices fell on Tuesday as Russian President Vladimir Putin said his country would use military force in the Ukraine only as a last resort, prompting a reversal in Monday's flight to safe assets like U.S. Treasuries.

Putin on Tuesday also ordered troops involved in a military exercise in western Russia, close to the border with Ukraine, back to their bases, apparently seeking to ease East-West tension over fears of war in the former Soviet republic.

The news sent yields climbing to an intra-day high of 2.6620 percent, erasing Monday's gains, when yields fell to a one-month low.

"Respite with the Russia-Ukraine situation is taking some of the flight-to-quality bid out of the Treasury market," said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, NJ.

"The rapid developments over the weekend, especially coming amidst mixed data in the U.S., for a brief interval, took the wind out of the sails of the risk-on trade," said Tipp.

Ten-year notes were down 13/32 in price, pulling yields up to 2.653 percent from Monday's close of 2.608 percent. Thirty-year bonds fell 24/32 in price, sending yields to 3.598 percent from Monday's close of 3.558 percent.

"Treasuries can be in for a sharp, short-term correction," if tensions in the Ukraine ebb further, said Tipp.

Ten-year yields could face support at the 40-day moving average at 2.77 percent, but traders noted that the crisis in Ukraine is fluid and could worsen again.

The Federal Reserve will buy between $1.00 billion and $1.25 billion in debt maturing between 2036 and 2044 on Tuesday as part of its ongoing purchase program.

In the absence of any new economic data on Tuesday, investors await the Labor Department's non farm payrolls report due on Friday for further indication of the trajectory of the economy.

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