TREASURIES-Bonds slump on strong data, Europe optimism

* Bond appetite flags on solid U.S. data

* U.S. said ready to support bigger EU rescue fund

* 10-year note yield finds support at 2.95 pct

* Fed buys $8.17 bln in notes maturing in 2016 and 2017
(Updates market action, adds news on EU fund)

By Karen Brettell

NEW YORK, Dec 1 (BestGrowthStock) – U.S. Treasuries prices stumbled
on Wednesday with yields approaching recent highs, as data
showed the U.S. economy may be strengthening and speculation
grew that the European Central Bank would provide more help for
weaker nations.

Optimism over a resolution to the European debt crisis rose
on news that the United States may be ready to support the
extension of the European Financial Stability Facility via an
extra commitment of money from the International Monetary Fund.
For more, see [ID:nBRU011183]

Bond prices hit session lows after a report showed U.S.
private sector payrolls posted their biggest rise in three
years in November, lifting confidence about the job market
before Friday’s U.S. employment report for November.
[ID:nN01127417]

They pared some losses, however, after a report showed that
the pace of U.S. manufacturing tapered off slightly in
November, though the sector still posted its 16th consecutive
month of expansion.

“Treasuries are more likely to trade on U.S. data in the
short term,” said Brian Yelvington, fixed income analyst at
Knight Securities in Greenwich, Connecticut. However, “we
believe European sovereign spreads will remain under pressure
without significant coordinated policy action.”

Speculation that the ECB could launch a new debt purchase
program to combat turmoil in the region lifted risky assets,
including stocks, and reduced demand for safe-haven debt. The
ECB declined to comment on the bond purchase speculation.
[ID:nLDE6B00QU]

“We’ve got a lot of traders, particularly in Europe,
hopeful that the European central bank is going to address a
great deal of more support for weaker sovereigns,” said Jim
Vogel, interest rate strategist at FTN Financial in Memphis,
Tennessee.

He added that investors were looking for an opportunity to
reduce their positions in high grade government bonds.

Benchmark 10-year Treasury notes (US10YT=RR: ) fell 1-1/32
point in price to yield 2.93 percent, up from 2.80 percent on
Tuesday. They found chart support in the 2.95 percent area.

The 30-year bond (US30YT=RR: ) dropped 1-16/32 in price to
yield 4.20 percent, up from 4.11 percent late Tuesday.

The cost of insuring U.S. government debt in the credit
default swap market fell to around 43 basis points, or $43,000
per year to insure $10 million in debt for five years. The
swaps had traded at about 46 basis points on Tuesday, their
highest level since October 7, according to Markit Intraday.

The Federal Reserve bought $8.17 billion of notes due
between 2016 and 2017 on Wednesday as part of a second round of
its quantitative easing program.

The bond purchases have helped stabilize Treasury prices in
recent days, though the selling of positions taken ahead of the
Fed’s Nov. 3 quantitative easing statement still caused the
debt to end November as its worst month in nearly a year.

Fed purchases are likely to continue to provide a bid to
the market, though improving data could push yields higher as
investors start pricing in higher inflation expectations.

“The longer term view that we have is that the economy is
slowly healing,” said Tom Girard, head of portfolio management
and strategy at the fixed income investors group of New York
Life Investments in New York.

“It wouldn’t surprise me at some point in 2011 if the
consensus starts to turn and people start to revise up their
forecast for economic growth and therefore Treasury yields
ultimately reverse and move higher,” he said.
(Additional reporting by Richard Leong; Editing by Padraic
Cassidy)

TREASURIES-Bonds slump on strong data, Europe optimism