August 21, 2012 / 2:07 PM / 5 years ago

TREASURIES-Prices ease as investors turn to riskier assets

* ECB expected to intervene to stem euro zone crisis
    * Benchmark yields bumping against support at 1.87 pct
    * Fed to buy shorter-dated Treasuries as part of Twist

    By Chris Reese
    NEW YORK, Aug 21 (Reuters) - U.S. Treasury debt prices eased
on Tuesday as investors turned to riskier assets due to
expectations the European Central Bank will eventually intervene
to ease the euro zone debt crisis, although lack of detail about
any plans limited losses.
    Investors cited a story in British newspaper The Daily
Telegraph which said it could confirm an earlier report in
German media that ECB experts were examining plans to
effectively cap Spanish and Italian bond yields.
    The ECB tried to quash speculation on Monday that it would
target specific interest rate thresholds as part of any
bond-buying program. On Tuesday, it reiterated
the statement.
    Uncertainty about the ECB plans is high. Investors are also
concerned the ECB's condition that troubled countries need to
ask for help from the euro zone's rescue funds before getting
assistance from the central bank may mean that the Spanish
crisis could get worse before it gets better.
    Still, some optimism over eventual ECB action had investors
looking to take on riskier assets, and German Bund futures fell
while Italian and Spanish debt yields dipped. Wall Street stocks
were making a run at a four-year high.
    "The market has moved to the belief that (the ECB) is going
to do whatever it takes," said William Larkin, fixed income
portfolio manager at Cabot Money Management in Salem,
Massachusetts.
    He added fears over the eventual outcome of Europe's debt
crisis, along with worries over the pace of global growth, had
pushed Treasury debt prices to levels that many investors
considered to be overly expensive.
    Benchmark yields have generally been rising since hitting a
record low of 1.38 percent in late July. Ten-year notes
 on Tuesday were trading 7/32 lower in price to yield
1.83 percent, up from 1.81 percent late Monday.
    Losses were also limited by technical factors, with the
200-day moving average at 1.87 percent capping this month's
rising trend in 10-year yields on the back of some improvement
in U.S. economic data.
    Investors are speculating on whether the Federal Reserve
will step in with another round of economic stimulus, and will
parse through the minutes of the central bank's last policy
meeting, set for release on Wednesday, for any clues as to
whether more quantitative easing is on the way.
    The Fed itself will sell shorter-dated Treasuries on Tuesday
as part of its current stimulus program, which has been dubbed
"Operation Twist." The Fed is selling shorter-dated U.S.
government debt and buying longer-dated Treasuries in an effort
to lower longer-term borrowing costs like those on mortgages.

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