November 18, 2011 / 2:11 PM / 7 years ago

TREASURIES-US bond prices ease as Italy, Spain fears ebb

* Treasuries prices ease as Italy, Spain bond yields fall

* U.S. bond investors take profits ahead of weekend

* U.S. deficit committee in focus, not yet moving bonds

By Karen Brettell

NEW YORK, Nov 18 (Reuters) - U.S. Treasuries prices fell on Friday as a decline in Italian government bond yields dampened the safety bid for U.S. debt and some investors unwound Treasuries purchases made over the past several days.

Italian and Spanish debt yields fell, though remained near unsustainable levels, as traders said that the European Central Bank intervened in markets in a bid to stem the spiraling debt costs.

Investors were also optimistic after Dow Jones reported that the European Central Bank may start lending funds to the IMF to help struggling euro-zone countries.

France and Germany are at odds over whether the ECB should intervene more forcefully to stem rising sovereign bond yields in the region.

“We’ve had a little bit of a recovery today,” said Rick Klingman, a Treasuries trader at BNP Paribas in New York. “Some of the flight-to-quality buying that has happened over the last couple of days is being unwound.”

The benchmark 10-year note fell 12/32 in price to yield 2.01 percent, up from 1.97 percent late on Thursday.

The yields have fallen from 2.40 percent three weeks ago as investors rushed to Treasuries on fears over spreading debt problems in Europe, but they have struggled to stay below 2 percent as many investors see the debt as too rich, given improving U.S. economic data.

Treasuries traders were also closely watching for progress from a U.S. deficit-reduction committee, which faces a Wednesday deadline to reach a deal to cut the deficit by at least $1.2 trillion over 10 years.

“I’m hearing more and more talk about it,” Klingman said. “I think it will become more and more in focus, but it’s taking a back seat for now to the crisis in Europe.”

The U.S. Federal Reserve will also buy between $2.25 billion and $2.75 billion in bonds due 2036 and 2041 on Friday as part of its “Operation Twist” program, designed to help reduce longer-term borrowing rates.

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