Bonds News

TREASURIES-Prices fall as supply, recovery talk weigh

* Yield curve steepens ahead of supply of 3s, 10s, 30s

* Europe’s debt fears ease; U.S. stocks gain

* With light economic data, supply is focus

* Volume dwindles (updates prices)

By Emily Flitter

NEW YORK, March 8 (Reuters) - Prices of U.S. government securities fell on Monday as investors prepared to absorb $74 billion in debt scheduled to be auctioned this week, with Friday’s better-than expected jobs report buoying hopes for an economic recovery and weighing on the market.

The yield curve steepened, with prices of longer-dated bonds and notes falling farthest ahead of auctions of three-year and reopened 10-year notes and reopened 30-year bonds starting on Tuesday.

Michael Pond, U.S. Treasury and inflation-linked strategist a Barclays Capital in New York, said it was natural for 30-year bonds to cheapen most dramatically of any security on the yield curve due to long-term concerns about inflation.

“The market will have to cheapen more and more to absorb the significant amount of supply that the Treasury is issuing,” he said. “Little by little, we do expect rates to head higher this year.”

Analysts said a lack of significant economic data and relative political quiet helped put the market’s focus on the coming supply and depressed volume.

“When you have a light economic news week, supply takes center stage,” said Raymond Remy, the U.S. head of fixed income at Daiwa Securities in New York.

Benchmark 10-year notes US10YT=RR traded 7/32 lower in price to yield 3.71 percent, up from 3.69 on Friday.

Thirty-year bonds US30YT=RR were down 15/32 in price to yield 4.68 percent, up from 4.65 percent on Friday.

Markets enjoyed relative political calm on Monday, with worries over a Greek debt crisis subsiding. A spokesman for the European Union said the EU was considering forming a rescue fund to prevent future crises in the eurozone. For more, click on [ID:nLDE62715V]

“I think there’s some positive feelings about what’s going on in Europe,” said John Spinello, U.S. Treasury bond strategist at Jefferies & Co in New York.

Analysts said fresh expectations for an economic recovery added to pressure on Treasury prices. The U.S. Department of Labor reported on Friday the economy shed 36,000 jobs in February. Economists had predicted larger drop.

“There is a feeling that the economy is starting to gain some traction; the job market has probably bottomed out,” Spinello said.

Two-year notes US2YT=RR were unchanged in price, yielding 0.90 percent, while five-year Treasury notes US5YT=RR were 3/32 lower to yield 2.36 percent from 2.34 percent on Friday. (Editing by Diane Craft)