May 22, 2012 / 8:56 PM / 7 years ago

TREASURIES-Prices fall on profit-taking in new debt sales

* Traders look ahead to EU leaders' Wednesday summit
    * Treasury auctions $35 bln of two-year notes
    * Benchmark yields remain near 60-year lows

    By Chris Reese	
    NEW YORK, May 22 (Reuters) - Benchmark U.S. Treasury debt
prices fell on Tuesday for a third consecutive session as
investors took profits from recent gains and pushed for lower
prices ahead of government debt auctions later this week.	
    Treasury yields last week fell to levels near their lowest
in at least 60 years as fears that Europe will face new funding
stresses added to demand for safe-haven U.S. debt.	
    While a solution to Europe's debt woes did not appear to be
imminent, traders took the lack of big headlines early in the
week as an opportunity to cash in on the lofty prices while
waiting to see how European leaders will address the crisis.	
    "There was clearly a large unwind of risk, and it feels like
it has kind of run its course," said Scott Graham, head of
government bond trading at BMO Capital Markets in New York,
adding: "I suspect we will bounce back and forth here, though if
there is going to be substantial progress made in Europe, then
we are way too expensive."	
    Traders are also preparing for supply of $35 billion of
five-year notes on Wednesday and $29 billion of seven-year notes
on Thursday after a $35 billion sale of two-year notes on
Tuesday. Investors often try to reduce prices heading into such
auctions.	
    The two-year note sale was met with near-average demand and
Treasury debt prices traded steady at lower levels following the
auction, with benchmark 10-year notes down 10/32 in
price to yield 1.78 percent, up from 1.74 percent on Monday.	
    Despite a third straight session of higher yields, the rate
remains only marginally above the 1.67 percent level touched
last September, which marked the lowest in at least 60 years.	
    Traders will focus on an informal summit of EU leaders in
Brussels on Wednesday, where French President Francois Hollande
will push a proposal to move to bonds that are jointly
underwritten by all euro zone member states.	
    Germany opposes any such move, saying more progress is
needed on coordinating fiscal policies across the euro zone.
 	
    The monthly U.S. employment report scheduled for next week
and Greek elections next month will help determine further
market moves and whether yields retest recent lows.	
    Safe-haven demand for Treasuries was also undermined on
Tuesday by data showing U.S. home resales rose in April to their
highest annual rate in nearly two years, while a falloff in
foreclosures pushed home prices higher. 	
    "While the rise in sales is much flatter than in previous
recoveries, with longstanding structural issues including tepid
job creation and limited income growth holding it back, some
sidelined demand is slowly returning to the market," said
Lindsey Piegza, economist at FTN Financial in New York, adding
"housing appears on a far more solid footing than a year ago."	
    Price losses were pared on Tuesday afternoon after Dow Jones
quoted former Greek prime minister Lucas Papademos as saying
that Greeks had no choice but to stick with a painful austerity
program or face a damaging exit from the euro zone, a risk he
said was unlikely to materialize but was real.	
    Papademos also told the news agency that some European
states and institutions were considering contingency plans for
any eventuality.	
    Thirty-year bonds traded 1-9/32 lower in price
to yield 2.87 percent, up from 2.81 percent late Monday.
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