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Bonds News

TREASURIES-Longer-dated bonds climb on European debt worries

* Uncertainty over Greek aid package spurs Treasury buying

* Short-dated notes look riskier as U.S. economy brightens

* Treasury yield curve flattest in nearly a month (Adds analysts’ comments, updates prices, changes byline)

NEW YORK, April 21 (Reuters) - Longer-dated Treasury debt prices rose on Wednesday as persistent worries about the implications of Greece’s debt crisis had investors scrambling to buy lower-risk U.S. government debt.

Shorter-dated Treasuries remained somewhat anchored, however, with investor reluctance to push yields lower as the near-term outlook for interest rates grew murkier.

As Greece began talks with the European Union and International Monetary Fund on a lending plan, Greek bond yields rose and the spread between Greek and benchmark German debt widened, signaling a fresh wave of anxiety in the market. For more on the meetings, click on [ID:nLDE63K2B8].

“There are enough concerns being raised as to the credit stability in a very important part of the globe that it behooves us to put a few more chips into an area where we don’t have to worry about credit quality,” said David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey.

Shorter-dated Treasures were more steadfast as recent data showing improvements in the U.S. economy, coupled with the Canadian central bank’s hints in a statement released on Tuesday that it could raise interest rates sooner than expected, eroded the certainty that short-term U.S. rates would stay low.

Coming auctions of shorter-dated notes further sapped the appeal of the curve’s front end, driving buyers into 10-year Treasury notes and 30-year bonds.

“The front-end, in addition to facing supply next week, appears rich as the present level of policy accommodation in the U.S. seems increasingly less appropriate,” said Richard Byrant, head of Treasury trading at MF Global Holdings Ltd in New York.

“Yesterday’s Bank of Canada announcement was a reminder to markets that central banks globally are not afraid to take back some flexibility with respect to policy,” Bryant said.

Benchmark 10-year Treasury notes US10YT=RR traded 14/32 higher in price to yield 3.75 percent, down from 3.80 percent at Tuesday's close, while the 30-year bond US30YT=RR rose 29/32 to yield 4.62 percent from 4.68 percent.

Two-year notesUS2YT=RR were unchanged in price and yielding 1.01 percent.

The dip in longer-dated yields flattened the Treasury yield curve, with the spread between yields on 10-year notes and two-year notes narrowing to 271 basis points, the slimmest in nearly a month.

“If you’re worried about the front end, you’re going to park your cash in the back end,” said George Goncalves, interest-rate strategist at Nomura Securities in New York. “It doesn’t mean that rates won’t rise here even if the curve flattens.”

The Treasury on Thursday will announce the size of the pending round of debt sales in next week’s auctions of two-year, five-year and seven-year notes.

While the looming supply limited price gains in shorter-dated Treasuries on Wednesday, some investors were speculating the government will eventually scale back its borrowing needs this year.

Morgan Stanley said on Wednesday that rising tax receipts will likely reduce U.S. government borrowing needs for the rest of this fiscal year and fiscal 2011, and that the U.S. Treasury may also stop issuing three-year notes in fiscal 2011 after bringing it back in November 2008 as a part of its effort to raise money for emergency economic programs. [ID:nN21202045] (Additional reporting by Emily Flitter and Richard Leong; Editing by Leslie Adler)

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