January 28, 2013 / 11:41 AM / 5 years ago

TREASURIES-U.S. bonds inch up in Europe after sell-off

LONDON, Jan 28 (Reuters) - U.S. Treasuries edged up in Europe on Monday as some investors tiptoed back into the market attracted by higher yields after a sharp sell-off on Friday.

The 10-year T-note was last up 4.32 in price to yield 1.935 percent, 1.2 basis points down from late U.S. trade on Friday.

The 10-year yield jumped 10 basis points on Friday, its biggest one-day rise since mid-October, to near a three-week high around 1.95 percent. The jump came after data showed European banks planned to repay more emergency loans than expected, suggesting the region’s banking sector was on the mend and cooling demand for low risk debt.

“There’s been a bit of buying today. We saw some of it in Tokyo time...But coming into the Japanese year end of February-March may lead to some profit taking at these levels,” one trader said.

“On the other hand these are attractive yield levels from where we’ve recovered in the past, and that’s what seemed to have happened this morning. We’ve seen a bit of buying from Asian central banks, the Middle East and a bit from Europeans and Japanese.”

The modest rebound still looked shaky as the market braces for $99 billion worth of bond sales this week.

The Treasury will kick off this week’s supply with $35 billion in two-year notes on Monday, $35 billion in five-year notes on Tuesday and $29 billion in seven-year notes on Wednesday.

Two-year notes were last unchanged on the day at 0.28 percent, having fallen below German counterparts for the first time in 13 months on Friday.

“The obvious temptation, now, is for the 10-year yield to try and test the 2 percent round-number level, but given the size of the latest move, further material near-term weakness will probably need validation by euro area bank refunding activity and economic data,” Lloyds strategists said in a note.

Investors were also wary of putting on big positions before the outcome on Wednesday of the Federal Reserve’s two-day policy meeting. The statement will be scrutinized for signs of whether the central bank is likely to end its latest bond purchase programme this year.

Minutes from the Fed’s December meeting, released on Jan. 3, showed that some Fed voting members opposed continuing bond buybacks, sparking speculation that the central bank may end its latest round of quantitative easing before year-end.

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