* Private index on euro zone business hits 10-month high
* Fed to buy $1.25 bln to $1.75 bln debt due 2036-2042
* ISM U.S. services activity data on tap
* U.S. to sell a record amount of one-month bills
By Richard Leong
NEW YORK, Feb 5 U.S. Treasuries prices fell on
Tuesday after less worrisome data on European business activity
in 10 months raised hopes of an economic recovery in the region,
stoking selling of safe-haven government debt.
The market sell-off was also spurred by lower yields on
Italian and Spanish sovereign debt after they jumped on Monday
on worries about possible major political shake-ups in euro
zone's third and fourth biggest economies.
Another factor exacerbating the weakness in Treasuries
prices was a revived reduction of long-dated hedges on debt
securities known as power reverse dual currency notes.
Long-dated yields have risen recently as dealers have been
unwinding hedges on these "exotic" products due to weakness in
the Japanese yen against the dollar, traders and analysts said.
"The key in the near term is the movement in Spanish and
Italian yields. We are seeing a small reversal after Monday's
move. We are seeing Treasuries yields rising in response," said
Brian Reynolds, chief market strategist at Rosenblatt Securities
in New York.
Benchmark 10-year Treasuries notes were 15/32 in
price at 96-19/32, yielding 2.011 percent, up 5.4 basis points
from late on Monday when the 10-year yield hit 2.059 percent,
the highest level in more than nine months.
The 30-year bond were 27/32 lower in price at
91-8/32 for a yield of 3.208 percent, up 4.6 basis points from
The weakness in Treasuries stemmed from a partial recovery
in Italian and Spanish government debt when investors sold them
on corruption allegations of Spanish Prime Minister Mariano
Rajoy's government and growing chances that former Italian prime
minister Silvio Berlusconi might regain office.
The yield on 10-year Spanish government notes
fell from a six-week high to 5.37 percent, down 6 basis points
from Monday's close, while the yield on Italian sovereign debt
slipped to 4.43 percent, down 4 basis points from
late on Monday.
Concerns about euro zone's political developments and their
implications on the region's handling of its fiscal crisis
coincided with some signs that the euro zone's economy may be
turning the corner.
Earlier Tuesday, Markit's Eurozone Composite PMI, based on
business activity across thousands of companies, and a good
gauge of economic growth, rose in January to a 10-month high of
48.6 from 47.2 in December - an improvement on the preliminary
reading of 48.2.
The Institute for Supply Management will release its January
figures on the U.S. services sector at 10 a.m. (1500 GMT).
Economists forecast the ISM non-manufacturing index likely
decline to 55.2 points in January from 55.7 in December.
On the supply front, the U.S. Federal Reserve will buy $1.25
billion to $1.75 billion in Treasuries that mature between Feb.
2036 and Nov. 2042 at 11 a.m. (1600 GMT), which is part of its
$44 billion purchase of Treasuries in February.
The U.S. Treasury Department will sell at 11:30 a.m. (1630
GMT) $45 billion in one-month bills, which is the
a record amount for this maturity.