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TREASURIES-Longer-dated bond prices dip on profit-taking
June 5, 2012 / 8:17 PM / 6 years ago

TREASURIES-Longer-dated bond prices dip on profit-taking

 * Long-dated U.S. yields rise from historic lows
 * Mild profit-taking in 'deeply overbought' market cited
 * Uncertainty about Europe, Fed policy stems losses

 (Adds analyst's comments, updates prices)	
 By Chris Reese	
 NEW YORK, June 5 (Reuters) - Long-dated U.S. Treasuries
prices slipped for a second day on Tuesday as traders took
profits from a recent rally that pushed yields to historic lows
late last week.	
 The 30-year bond led the way down, falling
1-17/32 in price to yield 2.63 percent, up from 2.56 percent
late Monday. Bond yields touched a record low of 2.51 percent on
Friday after the government reported much weaker-than-expected
U.S. jobs growth last month.	
 "We have come so far so fast, with yields very near record
lows that some people see this as an opportunity to take
profits," said David Coard, head of fixed-income sales and
trading at The Williams Capital Group in New York. 	
 After benchmark 10-year Treasury yields touched
an all-time low of 1.44 percent on Friday, they rose on Monday
and Tuesday. The 10-year note was down 13/32 in price, with its
yield rising to 1.57 percent from 1.52 percent Monday.	
 "The market met some resistance at 1.5 percent on the
10-year yield," said James Sarni, managing principal at Los
Angeles-based Payden & Rygel.	
 Sarni said the year began with an "enormous 'risk-on' trade"
that pushed stocks up more than 11 percent. "Almost every
non-Treasury asset did better," he noted.	
 Conversely, a "risk-off" trade that began after the first
quarter was the catalyst for the drop in Treasury yields that
pushed the 10-year yield to a historic low last week, he said.	
 "We're in the midst of that, but I still believe the natural
habitat for 10-year yields is around 2 percent," Sarni said.	
 William O'Donnell, managing director and head of U.S.
Treasury strategy at RBS Securities in Stamford, Connecticut,
said some factors argued for higher Treasury yields.	
 "Stocks are beginning to stabilize. There's growing evidence
the U.S. housing market has stabilized, so it's no longer likely
to be a drag on growth or household wealth," he said.	
 But mainly, "people are getting bond market vertigo with
10-year yields at 1.5 percent," O'Donnell said. "There's not
much meat on the bone, no matter how worried you are about
Europe."	
 O'Donnell said even some of his firm's "most stridently
bullish accounts have been selling in the last few days during
this latest push lower in rates."	
 But investors still looked less than eager to abandon
safe-haven U.S. government debt, even with stocks making gains
and yields barely above historic lows. Losses across most of the
yield curve were mild.	
 "Our widespread anecdotes suggest legions of buyers will
emerge on a drop in bond prices and blip up in rates, so it's my
best guess 10-year Treasuries will chop sideways in a 1.50
percent- to 1.70-percent range because we still have a lot of
events to clear," O'Donnell said.	
 Investors are focused on a European Central Bank policy
meeting on Wednesday, Federal Reserve Chairman Ben Bernanke's
testimony before Congress on Thursday, Greek elections on June
17, and the outcome on June 20 of a two-day Federal Reserve
policy meeting.	
 "Bernanke on Thursday is potentially huge," O'Donnell said.	
 Investors will be tuning in to the congressional testimony
on Thursday to hear the Fed chairman's views on the intensity of
downside risks to U.S. economic growth and to get a sense of
whether the Fed might make monetary policy more accommodative in
an effort to spur economic growth.	
 Spain also tests the market on Thursday with an issue of up
to 2 billion euros ($2.5 billion) in medium-term and long-term
bonds at auction. The country's Treasury minister, Cristobal
Montoro, said on Tuesday that Spain's high borrowing costs mean
it is effectively shut out of the bond market and that the
European Union should help Madrid recapitalize its debt-laden
banks. 	
 "It's an event a day, so that will keep 10-year Treasury
yields contained," O'Donnell said. "We're nervously chopping
sideways. At the moment, we have some better selling."	
 A slightly higher-than-forecast reading on the Institute for
Supply Management's non-manufacturing index for May had no
lasting market impact. 	
	
 (Additional reporting by Ellen Freilich; Editing by Padraic
Cassidy)	
 	
 

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