March 18, 2013 / 5:05 AM / in 5 years

TREASURIES-Bonds jump as Cyprus bailout plan rattles investors

TOKYO, March 18 (Reuters) - U.S. Treasuries prices jumped on Monday on safe-haven demand as investors were jolted by the euro zone’s decision to force Cypriot savers to take some losses in exchange for a bailout.

The 10-year Treasuries rose 22.5/32 in price to trade at a yield of 1.913 percent, compared with 1.991 percent at the end of last week.

At one point, the yield dropped below 1.90 percent for the first time since March 6, and some analysts expected further falls towards the March 4 low of 1.827 percent.

In a radical departure from previous rescue packages, euro zone finance ministers want to tap Cyprus’ savers in order for the country to receive a 10 billion euro ($13 billion) bailout, triggering a run on cash after its announcement on Saturday morning.

Cyprus’s fractious 56-member parliament is scheduled to vote on the package on Monday afternoon, but approval of the deposit cut is far from a given.

“A cut in deposits was a condition that was unthinkable so far. This is a bit of a dangerous solution and there’s risk of contagion,” said Tomoaki Shishido, fixed income analyst at Nomura Securities.

The 10-year yield could fall to as low as 1.80 percent, with immediate focus on how European financial markets will react to the news, Shishido added.

The latest news mirrored the uncertainty caused by inconclusive elections in Italy in late February.

Treasuries quickly gave up gains soon after as a series of solid U.S. data overwhelmed worries over Europe but analysts say the negative impact stemming from the Cyprus bailot proposal is likely to be more enduring this time.

“I feel the impact of this could drag on longer than that,” said Tohru Yamamoto, chief bond strategist at Daiwa Securities.

“Euro zone policymakers said Greece was an exception when investors took a hit for their bond holdings. But now we have a cut in deposits. If you have two exceptions, they look more like precedents,” Yamamoto said.

Adding to the downbeat mood on Cyprus, there are worries the Italian political crisis could resurface as President Giorgio Napolitano is due to begin consultations with political leaders on Wednesday to see if there is any chance of establishing a government.

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