February 25, 2013 / 2:25 PM / 5 years ago

TREASURIES-Yields rise as Italian election hopes spur risk rally

* Treasuries prices fall on hopes for Italian pro-reform
    * Bernanke testimony on Tuesday in focus for bond purchase
    * Treasury to sell $99 bln new supply this week, $35 bln
2-year notes Mon
    * Fed will buy $2.75 bln-$3.50 bln in debt due 2020-2023

    By Karen Brettell
    NEW YORK, Feb 25 (Reuters) - U.S. Treasuries yields rose on
Monday as riskier assets in Europe including Italian government
debt rallied on hopes of a victory for a pro-reform Italian
government, reducing demand for lower-risk U.S. debt.
    Some investors also remained hesitant to buy Treasuries as
they continued to mull the likelihood that the Federal Reserve
will end its bond purchase program before year-end.
    Exit polls issued after voting closed in Italy's
parliamentary election showed the centre-left coalition led by
Pier Luigi Bersani was leading Silvio Berlusconi's centre-right
    "All indications are that there will be no large surprises
in the elections," said Tom Tucci, head of Treasuries trading at
CIBC in New York.
    Investors were also reticent about buying bonds before Fed
Chairman Ben Bernanke is due to deliver his semi-annual
testimony to the U.S. Senate Banking Committee on Tuesday
morning, which will be closely watched for any signs that the
Fed may end its bond purchase program sooner than most expect.
    Indications that some Fed board members are increasingly
cautious of continuing the U.S. central bank's bond purchase
program has heightened speculation that the Fed may end the
buybacks before year-end.
    "I don't think you have enough momentum in front of Bernanke
to generate buyers at higher prices yet," Tucci said. "We had a
pretty good rally last week, but I don't think people are true
believers that there is a significant move to lower yields."
    Benchmark 10-year notes yields have held in a
range from around 1.91 percent to 2.06 percent since Jan 28,
after trying but failing to break up support at around 2.03
percent to 2.06 percent several times in the past few weeks.
    The notes fell 9/32 in price on Monday to yield 2.00
percent, up from 1.96 percent late on Friday.
    Investors are also focused on an automatic $85 billion in
across-the board spending cuts that are due to come into force
on Friday unless lawmakers reach a deal on avoiding it, which
may boost demand for Treasuries as the deadline nears.
    President Barack Obama and others have called warned that
the measures will harm the country's still fledging economic
    The Treasury will sell $35 billion in two-year notes on
Monday, the first auction of a total $99 billion in supply this
week. The government will auction $35 billion in five-year notes
on Tuesday and $29 billion in seven-year notes on Wednesday.
    The Federal Reserve will purchase between $2.75 billion and
$3.50 billion in debt due 2020 to 2023 on Monday as part of its
ongoing bond purchase program meant to hold down long-term
borrowing rates and help reduce the unemployment rate.

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