May 9, 2012 / 1:30 PM / 5 years ago

TREASURIES-European crisis worries push yields lower

4 Min Read

* Benchmark yields briefly dip below key 1.8 pct level
    * Safe-haven demand may support 10-year note auction

    By Chris Reese	
    NEW YORK, May 9 (Reuters) - U.S. Treasury debt prices rose
on Wednesday as Greece's political stalemate and concerns about
Spain's ailing banking sector stoked fears of another round in
the long-running euro zone debt crisis, supporting demand for
low-risk assets.	
    Greece's struggle to form a government after weekend
elections made the outlook for implementing its austerity
program unclear. If it fails to follow up on pledges it made for
a European Union/IMF bailout, officials estimate it could run
out of money as soon as next month.	
    Greece will not receive any further tranches of aid under
the planned bailout program unless it continues with reforms,
German Foreign Minister Guido Westerwelle said in Brussels on
Wednesday.	
    Greece looked to be moving closer to a second snap election
as bickering politicians struggled to form a government	
    Spain remains at the forefront of the debt crisis, with its
10-year yields rising back above 6 percent after financial
sources said the country's banks could be forced to raise new
money to cover property loans, piling pressure on the struggling
sector. 	
    Benchmark 10-year Treasury debt prices were
trading 12/32 higher in price to yield 1.8 percent, down from
1.85 percent late Tuesday, 30-year bonds were
trading 27/32 higher to yield 2.99 percent from 3.04 percent.	
    "Treasuries may seem like they are ridiculously expensive,
but if you look at the uncertainty that is mounting in Europe
and the way things are going with our own economy, there is a
potential turn that could be very negative (for the global
economy)," said William Larkin, fixed income portfolio manager
at Cabot Money Management in Salem, Massachusetts. 	
     The safe-haven buying on Wednesday morning briefly pushed
10-year note yields below 1.8 percent, which is seen as a key
technical resistance level. Yields dipped to 1.795 percent,
which is the lowest since Jan. 31.	
    If yields hold below 1.8 percent, analysts said Treasuries
may be set for another leg higher in price.	
     "If we break through this 1.8 level it is going to be a new
game, a new heightened level of fear," Larkin said.	
     The market backdrop was likely to support a Treasury sale
of $24 billion of 10-year notes later on Wednesday, after
Tuesday's sale of $32 billion in three-year notes marked the
second highest ever bid-to-cover ratio. 	
    "The never-ending eurozone crisis and the global duration
grab that it has triggered has pushed US 10-year yields to
levels that could lead to a record low stop out yield," Nomura
Securities International said in a note.	
    Yields on 10-year notes in the when-issued market
, considered a proxy for where the high yield may
come in at the auction, were trading AT 1.833 percent early
Wednesday. 	
    The Treasury will auction $16 billion of 30-year bonds on
Thursday to round out the $72 billion of debt sales this week
under the Treasury's quarterly refunding.

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