August 21, 2012 / 4:27 PM / in 5 years

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 sells $7.8 bln of shorter-dated Treasuries as part of
Twist

    By Chris Reese
    NEW YORK, Aug 21 (Reuters) - U.S. Treasury debt prices fell
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.
    Willingness to take on more risk had investors bailing on
Treasuries, while U.S. stocks touched a four-year high. 
    Expectations of more ECB action were sparked by a weekend
report in German magazine Der Spiegel saying the ECB was
considering setting yield thresholds for any purchases of
struggling euro zone country's bonds.
    However, 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, an ECB
spokeswoman referred back to Monday's statement, which had said
it was misleading to report on policy decisions that had not
been taken.
    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 sell lower-risk U.S.
government debt. Ten-year Treasury notes on Tuesday
were trading 13/32 lower in price to yield 1.85 percent, up from
1.81 percent late Monday.
    "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.
    Losses were also limited on Tuesday by technical factors,
with the 200-day moving average at 1.87 percent capping this
month's rising trend in 10-year yields.
    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 sold $7.8 billion of shorter-dated Treasuries on
Tuesday as part of its current stimulus program, which has been
dubbed "Operation Twist." The central bank 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.
    Thirty-year Treasury bonds were trading 30/32
lower in price to yield 2.97 percent, up from 2.92 percent late
Monday.

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