TREASURIES-Europe worries, strong US auction boost govt bonds

* Strong three-year notes sale fuels further gains

* Worries over Europe, stocks drop revive safe-haven bid

* Long bonds up 2 points
(Updates with long bond rising 2 points, adds quote)

By Burton Frierson

NEW YORK, Sept 7 (BestGrowthStock) – U.S. Treasuries rebounded on
Tuesday after three straight losing sessions as weaker stocks,
worries about Europe’s financial sector and a strong three-year
auction lifted debt prices.

Renewed worries that Europe’s bank stress tests, aimed at
shoring up financial sector confidence, were not particularly
robust and that German banks may still have to raise a lot of
capital hurt stocks and helped safe-haven debt. For details
see[ID:nLDE6850Q9] and [.N].

Investors were also reassessing their initial relief about
Friday’s latest U.S. monthly jobs report, which was less grim
than expected, while a well-received auction of $33 billion
worth of three-year Treasuries boosted sentiment.

Coming off a three-day weekend following Monday’s Labor Day
holiday, the rally marked an abrupt turn after the bond market
was pummeled last week on hopes that the U.S. economy was not
in such a poor state as earlier thought.

“What’s driving Treasuries today is just a lot of negative
news out of Europe over the weekend and overnight,” said Jason
Rogan, director of U.S. Treasury trading at Guggenheim Capital
Markets LLC.

“Stocks are down. It’s been a slow grind up and then we
pushed through a little bit after a decent three-year
auction.”

The 30-year bond (US30YT=RR: ) gained more than two points on
the day, last trading up 2-3/32, yielding 3.67 percent versus
Friday’s close of 3.78 percent.

The benchmark 10-year note (US10YT=RR: ) was up almost a
point, trading 27/32 higher in price, yielding 2.60 percent
versus Friday’s close of 2.70 percent.

FEARS AWAKENED

A report on the European banking system reawakened fears
about the region’s financial health. The Wall Street Journal
report raised questions about bank stress tests carried out in
the euro zone earlier in the year.

Separately, Germany’s banking association said the
country’s 10 biggest banks may need 105 billion euros ($141
billion) of additional capital under a revamp of banking rules
designed to prevent future financial crises. That news weighed
on financial shares.

The gloom from Europe and the stock markets allowed bond
traders to ignore some minor signs of weakness in an otherwise
strong bond auction.

“With renewed European concerns and weaker risk assets
today, the flight-to-quality bid to the Treasury market helped
support today’s three-year auction,” said John Briggs, U.S.
Treasury strategist at RBS Securities in Stamford,
Connecticut.

The first of this week’s three bond offerings totaling $67
billion, the three-year auction produced a record-low yield,
the latest in a series for Treasury debt sales.

The sale attracted bids worth 3.21 times the amount on
offer, right on their six-month average. The record-low yield
at the auction also came in below expectations, indicating
investors were willing to pay a small premium to get the
bonds.

Among those negatives, primary dealers took 45.9 percent of
the sale, above their six-month average of around 39 percent,
meaning they were stuck with a larger-than-usual proportion of
the offering to sell to the market.

That was the highest dealer take in percentage terms since
May 2009, though auction sizes have been declining this year.

Foreign central bank and large institutional investor
demand appeared soft compared with recent averages, based on
the indirect bidder category, which accounted for about 42
percent of the sale.

This was well below the average of about 47 percent in the
last six auctions, though higher than the two previous sales.

The recently growing direct bid accounted for 11.7 percent
of the offering, below the six-month average of nearly 14
percent.
(Additional reporting by John Parry; Editing by Dan Grebler)

TREASURIES-Europe worries, strong US auction boost govt bonds