* Traders preparing for $21 bln 10-year note auction
* Slovakia EFSF vote could come Thursday, hopes high
* Global stocks rally spurs more selling in Treasuries
By Emily Flitter
NEW YORK, Oct 12 Treasury prices fell on
Wednesday as global stocks rallied on hopes that Europe's
financial crisis could soon be contained, while traders sold
off Treasuries in preparation for a $21 billion auction of
The 30-year Treasury bond saw the heaviest selling, losing
two points in price in early trading. Yields on 10-year notes
were at their highest since Sept 1, while 30-year yields
returned to highs last seen Sept. 21.
Optimism appeared strong among market participants that
European leaders would move to recapitalize struggling euro
zone banks and would also succeed in expanding the European
Financial Stability Fund. Slovakia is the only one of the 17
euro zone countries that must still approve the expansion of
the EFSF, in a vote that could come as early as Thursday.
George Goncalves, head of U.S. rates strategy at Nomura
Securities in New York, said higher hopes for Europe and better
U.S. economic data have "led to an overall risk-positive theme
for US markets."
That atmosphere was fueling selling in the Treasury
"We look for consolidation in the near term," Goncalves
wrote in a note to clients.
William O'Donnell, head of U.S. rates strategy at RBS
Securities in Stamford, Connecticut, said in a note to clients
he saw several technical indicators for continued selling in
Treasuries, especially in longer-dated securities. He pointed
to bearish weekly momentum in 10s and 30s, and a break above
the bull rate trendline on Tuesday by the 30-year yield.
"Long term Treasuries are at serious risk of surprising the
crowd (me too) with the magnitude of ongoing back-up,"
That sentiment could create some confusion around
Wednesday's auction. The Treasury Department will sell $21
billion in reopened 10-year notes at 1 p.m. (1700 GMT).
While selling ahead of an auction usually bodes well for
demand at the auction, a widespread belief that yields are
still too low could cause potential bidders to hang back.
Last month's 10-year auction drew the lowest yield ever, at
2 percent. Wednesday morning's trading brought 10-year yields
to 2.22 percent, more the 20 basis points higher. Ten-year
notes were last off 21/32 in price.
The 30-year bond was down two points in price
and yielding 3.20 percent, up from 3.10 percent at Tuesday's