June 2, 2010 / 5:19 PM / 10 years ago

TREASURIES-Bonds fall as stock rally pares safe-haven bids

* Wall Street rebound pares safe-haven demand for bonds

* Pending home sales rose more than expected in April

* Concerns over Europe, political tension linger (Rewrites first paragraph, updates market action, adds comment)

By Richard Leong

NEW YORK, June 2 (Reuters) - U.S. Treasury debt prices fell on Wednesday as encouraging economic data helped to spark a rally on Wall Street and lessened the safe-haven appeal of government bonds.

Some bond dealers have also begun to make room for next week’s note supply, analysts said. The Treasury Department is scheduled to announce the details on its sale of three-year, 10-year and 30-year bonds on Thursday.

“There is a tone in the U.S. that things are getting better,” said Christian Cooper, senior rates trader with Jefferies & Co. in New York. “Also, without any major negative headlines from Europe at least for a day, risk markets want to run (higher) and that’s negative for bonds.”

Benchmark 10-year notes US10YT=RR were down 15/32 in price at 101-18/32 after rising to a session high of 102-2/32. Their yield, which moves inversely to price, was 3.32 percent, up 5 basis points from late on Tuesday but still far below the high of 4.00 percent hit in early April.

The three major U.S. stock indexes .DJI .SPX .IXIC were up more than 1 percent after Tuesday's sell-off tied to worries about energy companies caused by oil spill in the Gulf of Mexico. [.N]

But the impact of Wall Street’s gains was mitigated by worries over European sovereign debt and political flare-ups in the Middle East and the Korean peninsula, analysts said.


Wednesday’s promising economic data has not altered the perception that the U.S. recovery is at risk of slowing due to contagion from Europe’s public debt predicament, analysts said.

There is deep skepticism whether European authorities can resolve the debt problems of Greece, Spain and others. This could exert further selling pressure on global stock markets.

“Until we find a new solution in Europe ... I have a negative medium view on risk markets. This would be positive for Treasuries,” said Mark Pawlak, market strategist with Keefe, Bruyette & Woods in New York.

Treasuries have outdistanced other types of U.S. bonds since May as a result of the intense safety bids for low-risk assets.

According to Barclays Capital, its Treasury total return index rose 1.71 percent last month, the biggest monthly gain since a 2.18 percent increase in March 2009.

Still Treasuries’ good run slowed amid encouraging data on U.S. labor and housing. U.S. planned job cuts, according to outplacement firm Challenger, Gray & Christmas Inc., were less severe than some analysts had expected.

The Challenger report is one of the job indicators leading up to Friday’s government payroll report. Analysts widely predict a surge in jobs in May, fueled by federal hiring of temporary census workers.

Analysts polled by Reuters predicted employers added 513,000 net new jobs, which would be the biggest monthly increase in 26-1/2 years. [ID:nN01175887]

Investors also received encouraging signs from the housing market, although they were skewed by a buying rush in advance of the expiration of a federal tax credit at the end of April. [ID:nNLL1HE651] (Reporting by Richard Leong; Editing by Kenneth Barry)

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