February 9, 2015 / 9:57 PM / 3 years ago

TREASURIES-Prices ease as Greece, Ukraine rally fades; auctions eyed

* Ten-year yield near month high as risk-off rally ends
    * Treasury auctions on tap
    * Microsoft bond deal holds center stage

 (Adds details, updates prices)
    By Michael Connor
    NEW YORK, Feb 9 (Reuters) - U.S. Treasury debt prices eased
on Monday, leaving benchmark yields hovering near a one-month
high as traders readied for $64 billion of Treasury debt
auctions this week.
    The declines reversed an earlier rally during European
trading hours as investors spooked by Greece's stand-off with
the European Union and deadlier fighting in Ukraine shifted
funds to safe-haven government debt. 
    Yields on benchmark 10-year Treasury notes touched a low of
1.886 percent during the overnight session, but were last
trading at 1.947 percent, falling 7/32 in price, according to
Thomson Reuters data. That level was last approached on Jan. 12.
    Bonds sank last week, in part after an unexpectedly strong
U.S. jobs report on Friday that suggested to many investors the
Federal Reserve was ever closer to raising short-term rates at
near zero since December 2008.
    Geopolitical worries were shouldered aside by a massive,
unusually long-dated bond offering by Microsoft Corp 
was increased in size to $10.75 billion, and a renewed focus on
the relatively bright outlook of the U.S. economy, according to
Justin Lederer, an analyst at Cantor Fitzgerald in New York.
    "The U.S., especially after the payrolls number, is looking
at a different economy from the rest of the world," Lederer
said. "What you'd expect in bonds is what you are getting when
people are beginning to price in a rate hike."     
    Treasuries on Friday absorbed their largest one-day loss on
a total return basis since July 2013, during the "taper tantrum"
that erupted after the Fed suggested rate increases may be in
the offing.
    The 0.73 percent loss on the Bank of America/Merrill Lynch
U.S. Treasury Index on Friday, compared to 0.98 percent on July
5, 2013, a drop of more than two standard deviations from a
typical daily move. 
    The loss on the week was 1.53 percent, again the largest
since the summer of 2013.
    Thirty-year bond yields were last trading at
2.5386 percent, reflecting a price decline of 14/32, after
touching a session low of 2.464 percent on price gains topping
one full point, according to Thomson Reuters data.
    Shorter maturities were also off in price, with the yield
spread between five-year notes and 30-year bonds 
flattening one to 104.04 basis points.
    Treasuries were likely held back by corporate bond sales and
the $64 billion of Treasury auctions scheduled for this week,
according to Kim Rupert, managing director of Action Economics
in San Francisco.

 (Reporting by Michael Connor in New York; Editing by Chizu
Nomiyama and G Crosse)

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