March 22, 2013 / 2:40 PM / 5 years ago

TREASURIES-Prices fall on higher hopes for Cyprus

* Bond prices ebb on Greek deal with Cyprus banks
    * Fed will buy $3-$3.75 bln in notes due 2018-2020

    By Karen Brettell
    NEW YORK, March 22 (Reuters) - U.S. Treasuries prices fell
on Friday as investors grew more optimistic Cyprus would reach a
deal to avert a meltdown of its banking system.
    The European Union gave Cyprus until Monday to raise the
billions of euros it needs to secure an international bailout or
face a collapse of its financial system that could push it out
of the euro currency zone. 
    On Friday, however, Cyprus moved a step closer to raising
those funds by agreeing to spin off Greek units of debt-ridden
Cypriot banks. The Cypriot presidency said the deal had been
settled with favorable terms for Cyprus. 
    "I think the market was catching wind that you're going to
get some sort of settlement or passage to calm the market," said
Sean Murphy, a Treasuries trader at Societe Generale in New
    Ten-year notes fell 7/32 in price to yield 1.94
percent, up from 1.92 percent late on Thursday. 
    The notes have traded at yields of between 1.90 percent and
1.97 percent this week, after falling from around 2.06 percent
last week.
    Investors were still cautious though that much could change
over the weekend, and a safety bid may still emerge before the
end of the trading day.
    "Going into the weekend there is the potential to have some
risk reduction," said Dan Mulholland, managing director in
Treasuries trading at BNY Mellon in New York.
    Fears that Cyprus' problems could be replicated in other
euro zone countries including Spain and Italy have pushed
Treasuries yields down this week, despite improving U.S.
economic data that had led some market participants to position
for yield increases.
    Traders are now questioning whether further volatility in
the euro zone will push benchmark Treasuries again below the
1.90 percent level, or if a resolution to Cyprus' problems will
bring attention back to the U.S. economy, and send yields back
above 2 percent.
    "Overall guys aren't really quite sure which way the market
is going to break," said Murphy. "There is a good pull for
higher rates, and there is a stubborn crowd saying it's the same
old story and we're in a low rate environment for a while. It's
choppy enough that you're not getting enough on the data front
to really convince you to break out one way or another."
    Investors are scrutinizing data for signs of an improving
employment picture, which is seen as key for the Fed to end its
ongoing bond purchase program.
    The Fed will buy between $3 billion and $3.75 billion in
debt due 2018 and 2020 on Friday as part of this effort.
    Most economists expect the Fed to end or taper purchases at
the end of the year.
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