TREASURIES-Yields rise with German debt, re-set of bearish bond bets

Tue Jun 3, 2014 9:31am EDT

Related Topics

* Yields rise to three-week highs after German inflation
data
    * Corporate supply, short resetting weighs on bonds
    * Fed to buy $1.5 bln to $2.0 bln notes due 2020, 2021

    By Karen Brettell
    NEW YORK, June 3 (Reuters) - U.S. Treasuries yields rose to
their highest in three weeks on Tuesday as investors reset bets
that yields are likely to rise, after they fell to 11-month lows
last week, and as German government debt weakened.
    Yields have risen this week after month-end buying from last
week dissipated.
    Yields hit three-week highs earlier on Tuesday as German
bund yields spiked after euro zone inflation data came in in
line with revised expectations, prompting some in the market who
had expected an even weaker number to book profits after a
recent rally. 
    Investors have also covered bets that yields would rise in
recent weeks, which helped push them lower. But traders said
those bets are now being reset, which is putting pressure on the
bonds and sending yields back higher.
    "I think the short base is building again," said Tom Tucci,
head of Treasuries trading at CIBC in New York.
    A JPMorgan Treasuries survey released on Tuesday showed that
clients have the most net shorts since May 2006.
    Traders are preparing for a busy second half of the week,
with the European Central Bank expected to cut interest rates
and announce other measures meant to stimulate growth in the
region when it meets on Thursday.
    At the same time, strong corporate debt issuance is reducing
demand for Treasuries.
    "Yesterday there was a large amount of corporate issuance
that will continue into the end of the week, that is weighing on
prices, and the European market is staying offered rather than
bid into the ECB," Tucci said.
    A highly anticipated U.S. jobs report for May is also due on
Friday, which is expected to show that employers added 218,000
people to payrolls, according to the median estimate of 105
economists polled by Reuters. 
    Benchmark 10-year notes were last down 8/32 in
price to yield 2.556 percent, after reaching 2.575 percent
earlier on Tuesday, the highest since May 14. Thirty-year bonds
 fell 14/32 in price to yield 3.39 percent after
rising as high as 3.415 percent, the highest in a week.
    The Federal Reserve will buy between $1.50 billion and $2.00
billion in notes due in 2020 and 2021 on Tuesday as part of its
ongoing purchase program.

 (Editing by James Dalgleish)
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