* Benchmark yields not far above lowest in at least 60 years
* G8 leaders interested in having Greece stay in euro zone
* Treasury to sell $99 bln of 2-, 5- and 7-year notes
By Chris Reese
NEW YORK, May 21 (Reuters) – Benchmark U.S. Treasuries eased
in price on Monday as investors took profits after a recent
rally that was sparked by fears over a worsening of the European
debt crisis and ahead of $99 billion in new debt supply
scheduled for this week.
Benchmark 10-year Treasury note yields last week had dipped
to near the lowest level in at least 60 years as investors
looked for new information over how European leaders will
address a possible Greek exit from the euro zone.
Leaders of the Group of 8 richest nations at a summit on
Saturday said they had an interest in having Greece stay in the
euro zone and vowed to balance European austerity measures with
U.S. style-stimulus, seen as vital to healing ailing euro-zone
economies.
Traders were also consolidating positions after a two-month
rally driven by fears over contagion from Europe and concern
that U.S. economic growth is slowing.
Stocks gained on Monday, undermining the safe-haven value of
U.S. government debt, but benchmark Treasury losses were limited
as Europe’s debt problems remain keenly in focus.
“Equities are higher with a bit of help from the risk-on
trade, but even though we have $99 billion of coupon supply this
week, people are certainly well aware of the fact the problems
in Europe are not solved and that it is probably going to be a
long time until they are solved,” said Mary Ann Hurley, vice
president of fixed income trading at D.A. Davidson & Co in
Seattle.
U.S. 10-year Treasury notes were trading 6/32
lower in price to yield 1.74 percent, up from 1.72 percent late
Friday. Benchmark yields have fallen by more than 60 basis
points in the last two months and trade not far from 1.67
percent, a level hit on Sept. 23 that was the lowest yield in at
least 60 years.
New Treasuries sales this week include $99 billion in
two-year, five-year and seven-year notes on Tuesday, Wednesday
and Thursday. Traders often move to cheapen Treasuries prices
going into such auctions.
Thursday’s seven-year note auction will be the most closely
watched, coming a day before an early bond market close for the
long, Memorial Day weekend.
Seven-year notes were last yielding 1.16 percent,
after falling to a new low of 1.14 percent on Friday.
April’s seven-year note auction sold at record low auction
yield of 1.35 percent.
Many market participants were pondering whether there was
much room for further downside to the historically low yields
while the future of Europe’s debt crisis and the pace of the
U.S. recovery remained uncertain.
“We do not expect to witness a major selloff in Treasuries
any time soon – our end-2012 and end-2013 forecasts for the
10-year yield are both 2 percent,” said John Higgins, economist
at Capital Economics in London.
“We wouldn’t be surprised if Treasury yields were to fall
even lower than they are now for a while as the euro zone crisis
reaches a head,” Higgins said.
