* Treasury to start week's auctions with 3-year note sale
* German ZEW sentiment index rises sharply for December
* Fed expected to announce more Treasuries buying on Weds
By Chris Reese
NEW YORK, Dec 11 U.S. Treasuries fell on Tuesday
as investors pushed for price concessions going into $66 billion
of government debt auctions this week and as strength on Wall
Street undermined the safe-haven allure of Treasuries.
Prices dipped early with cues from lower German Bunds after
an unexpectedly strong reading on German investor sentiment, and
in calmer Italian debt markets after a sell-off on Monday
triggered by Prime Minister Mario Monti's decision to step down
The Federal Reserve began a two-day policy meeting on
Tuesday that is widely expected to produce another bond buying
program. Analysts said expectations of another Treasuries
purchase program have already been priced into the market.
"We are seeing a little bit of a set-up for supply, and we
came in weak thanks to Germany's investor sentiment index which
climbed unexpectedly higher, so we had some spillover from
declines in German Bunds," said Kim Rupert, managing director of
global fixed income analysis at Action Economics LLC in San
Germany's ZEW economic sentiment index jumped to 6.9 in
December, far higher than the -12.0 forecast and the previous
reading of -15.7.
Investors' willingness to take on more risk was also
supported by reports of a pick-up in the pace of talks to avert
the U.S. "fiscal cliff" of steep tax hikes and spending cuts set
for the new year, although Republicans and Democrats remain far
Benchmark 10-year Treasury notes were trading 10/32 lower in
price to yield 1.65 percent, the highest in over a week and up
from 1.63 percent late Monday, while 30-year bonds
were 25/32 lower in price to yield 2.84 percent from 2.80
"Treasuries open the session slightly weaker this morning
taking their cues overnight from Europe, mainly on the stronger
than expected German ZEW report," said Justin Lederer, Treasury
strategist at Cantor Fitzgerald in New York.
"The down-tick however has been fairly well contained with
yields in intermediates on out only two to three basis points
higher, prices slightly below their post non-farm payrolls lows,
and needless to say still well within the tight ranges that have
been establish across the curve," he said.
After its two-day meeting, the Fed on Wednesday is expected
to say it will buy $45 billion per month of longer-dated
Treasuries beginning in January to replace its "Operation Twist"
stimulus program, which expires at the end of December.
The Treasury will sell $32 billion in three-year notes on
Tuesday, followed by $21 billion in 10-year notes on Wednesday,
and $13 billion in 30-year bonds on Thursday. Traders typically
will push for lower Treasury prices heading into such auctions.
Ahead of Tuesday's sale, the when-issued three-year note
yield, considered a proxy for where the yield will
print at auction, was trading at 0.332 percent, compared with
three-year yields on the open market at 0.329