LONDON Feb 7 U.S. government bonds dipped in
Europe on Thursday, after strong demand at a Spanish debt sale
eased some of the concerns about political stability in Madrid,
denting appetite for low-risk assets.
A widening corruption scandal involving officials of the
ruling People's Party has led to calls for Prime Minister
Mariano Rajoy to resign, raising worries that Spain may delay
economic changes aimed at overcoming its debt crisis.
Spain sold more debt than planned and demand was similar to
that seen at strong auctions in January, indicating investors,
despite bidding a lower price for the bonds, were not ready to
give up holding the high-yielding paper.
"The supply in Europe hit (German) Bunds and that triggered
selling in Treasuries as well," one trader said.
U.S. 10-year T-note yields were last 2.9 basis
points higher on the day at 1.9928 percent, while T-note futures
were 7/32 lower at 131-25/64.
The trader said 10-year yields were developing a new trading
range around 1.95-2.15 percent.
Some of the focus has switched to the European Central Bank
meeting later in the day. The bank is expected to keep interest
rates unchanged at 0.75 percent, but some in the market expect
President Mario Draghi to soften its tone on monetary policy due
to worries that a recent strengthening of the euro may hurt euro
zone exporters and hamper chances of a full economic recovery.
Such a scenario may trigger a rebound in German Bunds and
drag U.S. bonds with it because the two often move in tandem due
to their safe haven status, traders said.