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TREASURIES-Bonds little changed, ECB plans in focus
August 21, 2012 / 7:22 PM / in 5 years

TREASURIES-Bonds little changed, ECB plans in focus

By Karen Brettell
    NEW YORK, Aug 21 (Reuters) - U.S. Treasuries were largely
unchanged on Tuesday, erasing earlier price losses, as investors
focused on what steps the European Central Bank will take to
stem the euro zone's debt crisis.
    U.S. government debt yields earlier returned to three-month
highs after British newspaper The Daily Telegraph revived
speculation over more aggressive ECB action. 
    The paper reported that the central bank planned to put a
hard cap on Spanish and Italian bond yields.
    "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,
    Treasuries erased price losses in the afternoon and stocks 
turned negative as doubts over the plan resurfaced. Market moves
were exacerbated by light trading volumes, with many traders out
for summer vacations.
    "You'll hear a lot of rhetoric out of Europe, but until they
follow through on something, I don't think the market will react
too strongly in either direction," said Matthew Duch, a
portfolio manager at Calvert Investments in Bethesda, Maryland.
    An ECB spokeswoman, when asked about the Daily Telegraph
story, referred to a statement on Monday in which the central
bank dismissed a similar report from a German magazine. The ECB
said it was misleading to report on policy decisions that had
not been taken.
    Increasing optimism over further ECB action, along with
improving U.S. economic data, has reduced demand for safe haven
debt including Treasuries and sent yields surging from record
lows a month ago.
    Benchmark 10-year note yields tested technical
support at around 1.86 percent for the third time in the past
four days on Tuesday but failed to break firmly above the level,
the notes' 200-day moving average.
    The notes' yields last traded at 1.82 percent. They have
jumped from 1.38 percent on July 25.
    After a four-week selloff, bonds have largely treaded water
in the past four trading sessions, with little new information
on the U.S. economy or the ECB's plans available to send yields
into a new trading range.
    Treasuries are seen as likely to regain favor if market
volatility picks up in September when the ECB and the U.S.
Federal Reserve are next scheduled to hold their separate
meetings, and as November's U.S. presidential and congressional
elections approach.
    "A fair amount of people are sitting on gains for the year,
so there could be shedding of risk and buying of Treasuries in
the front-end," Duch said.
    The Fed sold $7.8 billion of debt due 2014 and 2015 on
Tuesday as part of its Operation Twist program, in which it buys
long-term debt in an attempt to reduce longer-term borrowing
costs and sells short-term notes to fund the purchases.

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