March 26, 2013 / 4:25 AM / in 5 years

TREASURIES-U.S. 10-year notes slip in Asia but losses limited

SINGAPORE, March 26 (Reuters) - U.S. 10-year Treasuries edged lower on Tuesday, but losses were limited as investors worried that a contentious rescue scheme for Cyprus could become a template for resolving any future banking sector crises in the euro zone.

* Ten-year Treasuries slipped about 2/32 in price in Asian trade to yield 1.929 percent. The 10-year yield rose roughly 1 basis point from late U.S. trade, but remained below Monday’s one-week high of about 1.974 percent.

* Treasuries had initially retreated on Monday after Cyprus clinched a last ditch deal with the European Union to avoid a banking sector collapse. The plan involves closing down the country’s second largest bank and will inflict heavy losses on big depositors.

Treasuries, however, turned higher later on Monday after the head of the Eurogroup of euro zone finance ministers, Jeroen Dijsselbloem, said the rescue programme for Cyprus will serve as a model for dealing with future euro zone banking crises.

He later appeared to backtrack, saying Cyprus was a specific case with exceptional challenges.

* Still, worries are likely to linger in the market that the aid scheme for Cyprus and the idea of having bank depositors bear a burden, could become a model for future rescue programmes in the euro zone, said Tomohisa Fujiki, interest rate strategist for BNP Paribas in Tokyo.

Another supportive factor for Treasuries is uncertainty about the U.S. economy’s prospects, Fujiki said.

“The U.S. economy has held up pretty firmly since the start of the year, but the concern is about the outlook,” he said, referring to the potential impact from the federal budget cuts that came into effect this month.

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