3 Min Read
* Comey testimony says Trump asked him to downplay Flynn probe
* U.S. 10-year yield hits session highs after Comey remarks
* Focus on UK election, ECB meeting (Adds Comey remarks, analyst comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, June 7 (Reuters) - U.S. Treasury debt prices dropped on Wednesday, after comments from former FBI director James Comey on the bureau's investigation into Russia's alleged interference in the 2016 U.S. presidential election were viewed by investors as less damaging than they initially thought.
Benchmark U.S. 10-year yields hit session highs after the prepared text of Comey's testimony was posted on the Senate Intelligence Committee's website. The remarks will be delivered on Thursday before the Senate panel.
Comey accused Trump on Wednesday of trying to get him to water down the bureau's investigation into Russia's alleged interference in the 2016 U.S. presidential election.
Trump asked Comey to drop an investigation of former national security adviser Michael Flynn as part of the Federal Bureau of Investigation probe into whether Moscow meddled in the election.
Trump fired Comey on May 9 in a shock move that heightened scrutiny of the matter.
While Comey's statement did not reveal new damning details in the market's view, analysts expected fireworks at Thursday's question and answer portion of the former FBI chief's testimony.
"The market was pricing in a much worse news flow from the Comey testimony than what we saw," said Bruno Braizinha, interest rates strategist, at TD Securities in New Y9ork.
"But it's one risk out of the way, and now the market is looking at the ECB meeting and the UK election," he added.
The European Central Bank is widely expected to keep its policy unchanged at its meeting on Thursday, including its 2.3 trillion euro bond buying program, and pledge to keep interest rates low. But sources told Reuters last week the ECB will acknowledge the improved economic outlook by removing a reference to "downside risks" in its statement.
Britain's elections are also on the market's radar, as they could determine whether the country has a smooth or hard exit from the European Union. A majority victory for Conservative Prime Minister Theresa May would ensure a smooth transition out of the EU, analysts said.
Opinion polls have shown May's lead over the opposition Labor party narrow over the last three weeks, with some even suggesting she could fall short of a majority government.
In late trading, U.S. 10-year Treasuries were last down 8/32 in price, with yields at 2.176 percent, from 2.147 percent late on Tuesday.
U.S. 30-year bonds fell 16/32 in price, yielding 2.835 percent, compared with Tuesday's 2.81 percent.
U.S. two-year yields were at 1.314 percent, from 1.298 percent late on Tuesday. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Paul Simao and Chizu Nomiyama)