TREASURIES-Edge higher in Asia, eyes on equities and PPI
TOKYO, Feb 26 (Reuters) - U.S. Treasuries edged higher in Asia on Tuesday, but gains were limited as worries about downgrades of top U.S. bond insurers receded, soothing concerns about further damage to ailing credit markets.
Treasuries regained some ground, after falling sharply on Monday as equities rallied after Standard & Poor's removed its threat to downgrade MBIA (MBI.N) Inc's "AAA" rating.
But worries over bond insurers have not disappeared. S&P said the main unit at Ambac Financial Group Inc (ABK.N), the second-largest bond insurer, may still lose its top ratings. [ID:nN25266631]
Market players are now focusing on the outcome of a possible rescue for Ambac, which is making an effort to raise new capital.
Moves in share prices as well as data on producer prices due later on Tuesday will also draw investors' attention.
"On balance the market's overall stance seems to be to sell on rallies, since investors have already braced themselves for what might happen in the worst case," said a senior trader for a U.S. investment bank, referring to the tumult in credit markets.
Benchmark 10-year Treasuries rose 4/32 in price to yield 3.895 percent US10YT=RR, compared with 3.910 percent in late U.S. trading on Monday.
Thirty-year bonds rose 6.5/32 in price to yield 4.653 percent US30YT=RR, down from 4.666 percent late in New York.
The two-year note was steady with a yield of 2.117 percent US2YT=RR.
Concern that financial firms may suffer greater losses if the bond insurers lose their top-notch ratings, leading to ratings downgrades on the fixed-income securities they back, have kept investors on edge since the start of the year.
Any deal to rescue bond insurer Ambac Financial Group Inc (ABK.N) would likely be signed early next week, according to a person briefed on the matter. [ID:nN25558735]
Producer prices could prove troubling for bonds after core consumer prices, which exclude food and energy items, rose 0.3 percent in January, the strongest monthly rise since June 2006.
The median forecast of economists in a Reuters survey is for the producer price index (PPI) to rise 0.4 percent in January compared with a 0.3 percent fall in December. Excluding volatile food and energy items, the PPI is seen up 0.2 percent, in what would be a repeat of the December figure.
Other data due on Tuesday include the consumer confidence index for February and the S&P/Case-Shiller Home Price Index. (Editing by Chris Gallagher)
