October 19, 2012 / 4:45 AM / 5 years ago

TREASURIES-US 10-year yield dips but still near 1-month high

SINGAPORE, Oct 19 (Reuters) - The U.S. 10-year Treasury yield eased on Friday but remained near a one-month high, having climbed this week on upbeat U.S. housing data and as a drop in Spanish bond yields allayed worries over the euro zone’s debt crisis.

* The 10-year Treasury yield stood at 1.820 percent in Asia, down slightly from the previous day’s one-month high of 1.836 percent. Compared to late U.S. trade on Thursday, 10-year notes were up 3/32 in price and the 10-year yield was down 1 basis point.

* While demand for Treasuries in Asia on Friday was tepid, investors may start snatching up bonds if they get the sense that further rises in bond yields will be limited in the near term, said a trader for a U.S. brokerage house in Tokyo.

If that turns out to be the case, some traders may unwind bearish bets on Treasuries and give the market a lift, he said.

“So I don’t want to sell too aggressively, to take too big of a short position,” the trader added.

* Safe haven Treasuries have come under pressure this week as Spanish bond yields fell after Moody’s Investors Service affirmed Spain’s investment grade rating, with strong U.S. housing starts data on Wednesday having added to the sell-off.

* The economic backdrop suggests that bond yields may stay under upward pressure going into the year-end, said Tomoaki Shishido, rate analyst for Nomura Securities in Tokyo.

“It looks like economic data, at least in the United States, could be strong going into the year-end, and some Chinese indicators have also started to come in on the strong side,” he said.

Still, the Federal Reserve’s stance that it is unlikely to raise interest rates at least until mid-2015, and expectations for the Fed to continue with its bond purchases well into next year, may help limit rises in Treasury yields, he added.

“Buying will probably tend to emerge when the 10-year yield nears 2 percent,” Shishido said, adding that this week’s rise in yields has already helped to attract investor demand.

“We saw pretty significant over-the-counter buying by Japanese players yesterday,” he said.

A Reuters poll earlier this month showed that economists expect the Fed to buy a total of $600 billion of bonds under its newest stimulus program, known as QE3, and to buy Treasuries outright after its “Operation Twist” stimulus ends in December. ((masayuki.kitano@thomsonreuters.com +65-6417-4682)(RM:masayuki.kitano.thomsonreuters.com@reuters.net )

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