* Yields head toward support levels, signal more selling
* Greece approves austerity plan, second vote on Thursday
* Traders begin setup for $29 bln 7-year note auction
(Adds quote, technical info, changes headline, updates prices)
By Emily Flitter
NEW YORK, June 29 Treasury prices stretched a
sell-off into a third day on Wednesday as Greece's parliament
took the first of two steps toward adopting austerity measures
that would qualify the country for international aid and help
it avoid a default.
Analysts said the price action in Treasuries could signal a
broader move toward higher rates, unless something went
drastically wrong in Greece.
The Greek parliament approved a five-year package of
spending cuts, tax rises and state asset sales by a comfortable
margin in a key step toward securing international funds and
preventing the euro zone's first sovereign default. Another
"Yes" vote on Thursday will clear the deal. For details, see
"It's really all Greece this morning," said Gennadiy
Goldberg, fixed income analyst at 4CAST, Inc in New York.
"Everyone's really optimistic that the austerity measures will
As confidence in the markets grew, investors shifted more
and more of their money out of safe-haven bonds and into
higher-yielding assets such as stocks and commodities.
"It has provided more of a risk-on type of trade," said Kim
Rupert, managing director of global fixed income analysis at
Action Economics in San Francisco.
"We have seen equities make some pretty decent gains and
bond yields rise. Risk aversion has diminished."
Treasury yields were rising through key support levels,
with the 10-year yield US10YT=RR on its way to the top of its
50-day moving average at 3.11 percent.
"Once we break the 200-day moving average at 3.14 percent,
that would signal the start of a bigger correction," Goldberg
William O'Donnell, head of Treasury strategy at RBS
Securities in Stamford, Connecticut, said a bearish trend could
be in place by Friday's close that could take the 10-year yield
to 3.25 percent or even 3.40 percent.
But Goldberg said success for the austerity measures was
not certain, and neither was Treasuries' march toward higher
"The market's getting extremely optimistic, but if the
Greek vote is 'No,' all we've seen in the past three days may
be reversed in one giant move," he said.
Benchmark 10-year Treasury notes were trading 12/32 lower
in price and yielding 3.08 percent, up from 3.04 percent at
Tuesday's close. The 30-year Treasury bond US30YT=RR slipped
1/32 in price for a yield of 4.33 percent, unchanged from late
Traders were also setting up for a $29 billion auction of
seven-year notes set for 1 p.m. (1700 GMT). It was the third of
three auctions this week, with new coupon issuance totaling $99
The Treasury's $35 billion auctions of two-year notes and
five-year notes on Monday and Tuesday surprised market
participants with weaker-than-expected statistics. Bidders in
those auctions demanded lower prices and higher yields, and
there were fewer bids overall than in the recent past.
An auction of five-year German bunds on Wednesday also drew
surprisingly weak demand.
"Nothing today that we've seen has surprised us except for
some mild surprise that the five-year bund auction didn't
cover," said RBS' O'Donnell.
"When people started to think of the fact, 'Oh my gosh, we
had a bad two-year auction, a bad five-year auction, and now a
bad German five-year auction,' people are starting to think 'Oh
my gosh, the appetite for risk-less assets is fading.'"
George Goncalves, head of U.S. rates strategy at Nomura
Securities in New York, wrote in a note to clients: "The
seven-year auction is likely to be better received than the
five-year was on Tuesday as the current position on the curve
allows it better demand than the fives, in our view.
"Sevens also benefit from large real money buyers who are
drawn to extend from fives with the incentive of more stable
auctions and a pickup for a small extension up the curve."
Seven-year notes US7YT=RR were down 8/32 and yielding
2.35 percent, up from 2.31 percent late on Tuesday. The last
time the Treasury Department auctioned seven-year notes, their
auction high yield was also 2.38 percent.
(Additional reporting by Chris Reese; Editing by Dan Grebler)