Tuesday, January 11, 2011

TREASURIES-Government debt prices fall amid supply - Reuters

Tue Jan 11, 2011 4:24pm EST

* Prices cut before 10-, 30-yr auctions

* 3-year Treasury sale draws solid bidding

* Japan support eases Euro zone concerns

* Fed bought notes due 2016-2017 (Adds context, updates prices)

By Ellen Freilich

NEW YORK, Jan 11 (Reuters) - U.S. Treasuries prices fell on Tuesday as traders prepared for sales of re-opened 10- and 30-year Treasury securities, but the day's steepest losses were trimmed after a three-year note auction drew a strong bid.

A show of support by Japan for hard-hit euro zone debt eased some concerns over the region and weighed on safe-haven U.S. government debt.

So did stock market gains, the latter a sign of investors' willingness to shoulder more risk, again at the expense of safe-haven U.S. government debt. However, when stocks trimmed their best gains, Treasuries trimmed their worst losses.

Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut, said the three-year note auction enjoyed an average "takedown" with non-dealer bids 49.7 percent of the total, compared with a 50 percent norm.

"Treasuries were trading lower leading into the auction, building in a strong outright concession for three-years on the day (although the long-end has underperformed)," Lyngen said.

U.S. benchmark 10-year notes US10YT=RR fell 13/32 in price, their yields rising to 3.34 percent from 3.29 percent late Monday.

Ten-year yields have been largely rangebound in the area of 3.30 percent to 3.50 percent in the past few weeks after hitting a seven-month high of 3.57 percent in mid-December.

The U.S. Treasury is in the midst of selling $66 billion in new supply this week, the first part of which was Tuesday's sale of $32 billion in three-year notes.

The three-year auction stopped at 1.027 percent versus a when-issued bid Lyngen put at 1.029 percent. In mid-afternoon trade, three-year note yields had eased to 0.98 percent.

Dealers were awarded 44.5 percent of the sale versus 50 percent, the average of the last four three-year note auctions, Lyngen said.


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