March 1, 2012 / 5:31 PM / 5 years ago

TREASURIES-U.S. bonds down as QE3 timing reassessed

 * Riskier assets improve at expense of safe-haven U.S. debt
 * Peripheral debt spreads narrow, stocks gain
 * ISDA Greece decision weighs on safe-haven bid
 * Timing of QE3 reassessed after Bernanke Congressional
testimony

 (Adds comment, updates prices)	
 By Ellen Freilich	
 NEW YORK, March 1 (Reuters) - U.S. Treasury debt
prices fell on Thursday as some investors pushed back the timing
of another potential round of easing by the Federal Reserve and
riskier assets did better at the expense of safe-haven U.S.
debt.	
 "The genesis of the selling occurred yesterday when (Federal
Reserve Chairman Ben) Bernanke's Congressional testimony left
the impression that the Fed was not ready to give you QE3 sooner
rather than later," said Kevin Flanagan, executive director and
fixed-income strategist at Morgan Stanley, referring to a
potential third round of unconventional, or quantitative easing.	
 And Bernanke's question and answer session with the Senate
Banking Committee on Thursday did not correct that impression.	
 "There's a reassessment of where the Fed is going and some 
long positions are getting liquidated," Flanagan said. "The
market felt heavy in an environment of non-imminent QE3. That
doesn't mean they're not going to give you QE3, but the market
had priced it in as coming sooner, rather than later."	
 U.S. stocks rose at the expense of treasuries after
investors focused on positive jobs numbers among a mixed bag of
data. 	
 The government said U.S. jobless claims edged lower, holding
near four-year lows, suggesting the labor market was gaining
momentum. On the other hand, the Institute for Supply Management
(ISM) said its index showed the pace of manufacturing growth
slowed in February.	
 A decision by the International Swaps and Derivatives
Association that Greece's recent moves to prepare for a debt
restructuring had not triggered a payout on credit default swaps
also damped demand for Treasuries. [ID: nL5E8E14IC]	
 "If you're not going to have a CDS event provoked, there's
less need for safe-haven debt so you might as well sell some
Treasuries," said Cary Leahey, managing director and senior
economist at Decision Economics in New York.	
 Near midday, benchmark 10-year notes were down
24/32, their  yields rising to 2.06 percent from 1.97 percent
late on Wednesday. The 30-year bond fell 1-24/32,
its yield rising to 3.18 percent from 3.09 percent on Wednesday.	
 The ruling from ISDA also contributed to the generally
better environment for peripheral European debt while the safe
havens, U.S. Treasuries and German bunds, sold off, said Eric
Stein, vice president and portfolio manager at Eaton Vance
Investment Managers in Boston.	
 John Canavan, market analyst at Stone & McCarthy Research
Associates, noted that Italian and Spanish spreads, in
particular, have narrowed.	
 Yields on French bonds fell at an auction on Thursday
suggesting cash from the European Central Bank's flood of cheap
3-year loans was boosting appetite for longer-term debt. 	
 The French sale, following a 4.5 billion euro placement of
shorter-term paper by Spain, came a day after the ECB injected
530 billion euros in funds into banks in the second of two
operations that have eased concerns over Europe's debt crisis. 	
 Another riskier asset class, stocks, advanced, drawing
investors away from safe-haven Treasuries, Canavan said.	
 Besides "solid" auctions of Spanish and French debt after
Wednesday's long-term refinancing operation (LTRO), China's
purchasing managers' manufacturing index hit a five-month high,
said William O'Donnell, head of U.S. rate strategy at RBS in
Stamford, Connecticut. That offered another potential rationale
to sell safe-haven assets, along with the "no real mention of
QE3" in Bernanke's Congressional testimony, he said.	
 Still, Treasuries have not broken out of a range in place
since early November, analysts noted.	
 "Many people are taking profits because you had a move from
a little over 2 percent (in the 10-year yield) down to 1.9
percent," Leahey said. "There's been no significant change in
the range so in terms of the technical behavior of the market,
this move is not a game-changer."  	
	
 (Editing by Andrew Hay)	
 	
 

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