TREASURIES-Prices fall before supply, overseas demand stems losses

Fri Jun 6, 2014 2:59pm EDT

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(Recasts, updates prices)
    * Treasuries steady as jobs data meets expectations
    * European debt yields fall to record lows
    * U.S. debt seen attractive relative to Spanish, Italian
bonds
    * Treasury to sell $62 bln coupon-bearing debt next week

    By Karen Brettell
    NEW YORK, June 6 (Reuters) - U.S. Treasuries prices fell on
Friday ahead of a $62 billion sale of new coupon-bearing
government debt next week, though losses were capped as falling
yields on European bonds made U.S. debt relatively attractive.
    The U.S. government will sell $28 billion in three-year
notes on Tuesday, $21 billion in 10-year notes on Wednesday and
$13 billion in 30-year bonds on Thursday, new supply that
weighed on the market late on Friday.
   Prices dipped after an earlier rally as overseas investors
were drawn to Treasuries by their relatively attractive yields
compared with many European bonds.
     Italian Spanish and Irish bond yields fell to record lows
on Friday, a day after the European Central Bank cut all its
main rates to record lows, imposed negative interest rates on
overnight bank deposits and outlined a new long-term loan
program for banks to promote lending to small and mid-sized
businesses. 
    "The ECB delivered what the market was expecting in terms of
a rate cut and was on the dovish side in terms of easing
policies. That is a positive for European bonds and global fixed
income. With European bonds rallying, it inevitably drags U.S.
rates along with it," said Michael Chang, an interest rate
strategist at Credit Suisse in New York.
    Benchmark 10-year notes were last down 3/32 in
price to yield 2.60 percent, after earlier falling as low as
2.53 percent.
    That compares with 10-year Spanish bond yields 
at 2.62 percent and Italian bond yields offering
2.73 percent. Irish government bonds paid less than
comparable Treasuries for a second day, with 10-year yields
dropping to 2.43 percent.
    Treasuries are likely to remain attractive to many investors
as yields on other fixed income assets decline, despite data
that show the U.S. economy is gaining traction.
    "It's going to be hard for the Treasury market to sell off a
whole lot, given where peripheral European debt is at the
moment," said Dan Mulholland, managing director in Treasuries
trading at BNY Mellon in New York.
    Data on Friday showed that nonfarm payrolls increased by
217,000 last month, returning employment to its pre-recession
level and offering confirmation the economy has snapped back
from a winter slump. Economists polled by Reuters had expected
employment to increase by 218,000 last month.
    The unemployment rate held steady at a 5-1/2 year low of 6.3
percent even as some Americans who had given up the search for
work resumed their hunt. That was because there was an increase
in household employment. 
       

 (Reporting by Karen Brettell, Editing by W Simon, Dan Grebler
and Andrew Hay)
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