* U.S. CPI rises 0.3 percent, Treasuries trim losses
* Geopolitics still a big factor
* Investors reverse curve-flattening trades
By Gertrude Chavez-Dreyfuss
NEW YORK, July 22 U.S. long-term Treasury debt
prices fell on Tuesday as safe-haven demand weakened in line
with a rise in stocks, with investors hopeful tensions in the
Middle East and Ukraine will ease.
Analysts also said there was a reversal of the previous
session's yield curve-flattening trades. On Monday, the gap
between short- and long-term interest rates, mainly the spread
between yields of 2-year notes and 10-year bonds, shrank to
their narrowest in more than a year. This was an indication that
market participants were bracing for the Federal Reserve's
interest rate hikes.
Those trades were unwound on Tuesday, with investors buying
the front end of the curve and selling the long end.
Benign U.S. inflation data added to buying of short-term
notes, analysts said, capping their yields, which move inversely
with bond prices.
In the meantime, geopolitical concerns are still very much a
factor in the U.S. Treasuries market, although on Tuesday,
Treasury strategists said the situation was no worse than on
"Things have not worsened, so that's one of the reasons we
have seen some sell-off. Equity markets globally were fairly
robust, starting with Asia, Europe, and now Wall Street," said
Tom di Galoma, head of fixed income rates and credit trading at
ED&F Man in New York.
Israel pounded targets across the Gaza Strip on Tuesday,
saying no ceasefire was near, while European Union foreign
ministers threatened Russia with harsher sanctions over Ukraine.
But the tougher talk may not be matched by much action after
France's president signaled the disputed delivery of a warship
to Moscow would go ahead.
In late morning trading, benchmark 10-year U.S. Treasuries
were down 3/32 in price to yield 2.487 percent,
while the 30-year Treasury bond was down 9/32 in price, pushing
the yield up to 3.278 percent. On Monday U.S.
30-year Treasury bond yields fell to their lowest since June
Treasuries trimmed losses following data showing U.S.
consumer inflation data rose 0.3 percent in June, for many a
Investors also reversed some of Tuesday's flattening trades
as valuations became attractive on the front end.
"There's some curve-jockeying going on," said ED&F Man's Di
Galoma. "The curve had a very good move yesterday flatter and
there was a tremendous amount of buying on the long end, but
that has dried up and the front-end, meanwhile, has gotten too
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)