LONDON Jan 10 U.S. bond prices fell in Europe on Thursday after weak demand at a 10-year debt sale the previous day and as traders pushed for cheaper prices before an auction of 30-year bonds.
* Asian and European equities firmed after stronger than expected Chinese trade data helped to sap demand for low-risk U.S. debt.
* U.S. T-note futures were last 5/32 down at 131-29/32 while the benchmark 10-year T-note was 4/32 lower in price to yield 1.87 percent, up 1.3 basis points from late New York trade on Wednesday.
* "The market is a bit weaker especially on the back of the 10-year auction yesterday. We've seen selling in the 10-year space more than the longer end of the curve and that's putting pressure on the curve," a trader said.
* The $21 billion auction of 10-year notes on Wednesday was deemed weak by analysts. At 1.863 percent, the high yield for the auction exceeded market expectations, with lower than average non-dealer bidding and bid-to-cover.
* The Treasury will sell $13 billion in 30-year bonds later on Thursday. The 30-year T-bond dropped about 10/32 in price to yield 3.079 percent, up 2 bps from late U.S. trade, before the auction.
* While longer-end Treasuries may be weighed down going into the auction, the sale itself could be absorbed relatively smoothly, when taking into account the fact that the Fed has been buying longer-term Treasuries from the market under its asset-buying programme, some traders said.
* The Fed is currently buying $40 billion in mortgage-backed securities and $45 billion in longer-dated Treasuries each month in a bid to push down borrowing costs and spark faster growth.
* "I'd expect 30s are going to trade reasonably well after the auction. There're guys trying to put on flatteners on this part of the curve so it looks like 10s/30s is one of those trades that makes some sense after supply is out of the way so I would expect that we're going to see this curve flatten," one London-based trader said.