TREASURIES-Some reprieve in Asia near technical support

By Hideyuki Sano

TOKYO, Dec 16 (BestGrowthStock) – U.S. Treasuries won some reprieve
in Asia on Thursday as traders covered short positions near key
technical support levels in futures, while a rise in yields to a
seven-month high encouraged some bargain-hunting.

Still, many players are not convinced the market’s sell-off
since early November is coming to an end given the spectre of
higher growth and a wider deficit in the United States, with one
strategist seeing a rise in the 10-year yield to 4.3 percent.

The March T-note futures price (TYv1: ) climbed 08/32 to
119-05/32, as some traders covered short positions at key support
at 119 — a level that blocked futures twice in February before
turning into support in April.

“The market is very difficult now … but what I do sense is
that we’ve got down to levels that are technically supportive,”
said a trader at a European firm.

“It’s difficult to sell at this low and initiate a new
position,” he added.

The yield on 10-year cash bonds fell about 6 basis points to
3.48 percent (US10YT=RR: ) from around 3.54 percent in late U.S.
trade on Wednesday.

The yield rose as high as 3.56 percent, a level not seen
since May, in late U.S. trade.

Investors who had amassed U.S. Treasuries earlier this year
anticipating buying from the Federal Reserve have been dumping
bonds following the U.S. government’s deal to extend tax cuts
last week.

That deal added to optimism on the U.S. economy, which has
been sparked by brisk U.S. economic data in recent weeks.

But some investors think 3.5 percent for 10-year yields is a
good target to buy.

“Before the tax cuts, many investors had expected a 2.5-3.0
percent range for 10-year yields. Now their expectations have
shifted to 3.0-3.5 percent. I think the 10-year yield will
eventually fall,” said Hiroshi Yokotani, fixed income director at
Alliance Bernstein.

Japanese government data showed selling by Japanese investors
is easing. Their net selling of foreign bonds, of which a large
part is thought to be Treasuries, slowed to 309.1 billion yen
($3.67 billion) last week from 760.8 billion of sales the
previous week and 1.2 trillion yen in the week of Nov. 14-20.

Tomoaki Shishido, fixed income analyst at Nomura Securities,
said Japanese investors tend to have considerable influence on
the market in the final weeks of December as investors from many
other countries are away for year-end holidays.

HOLD ON

Nomura’s Shishido said Japanese investors may choose to hold
on to Treasuries, given that income gains from U.S. bonds are
much more attractive than domestic bonds. The 10-year Japanese
government bond yields (JP10YTN=JBTC: ) just under 1.3 percent.

Still, as Japanese investors have bought a massive 22
trillion yen of foreign bonds for 27 straight weeks until early
November, some traders suspect there could be more loss-cut
selling.

Daisuke Uno, chief strategist at Sumitomo Mitsui Banking
Corp, said the yield could rise to around around 4.33 percent as
early as March, based on his Elliott Wave analysis.

Unlike the majority of market players who think hopes for
stronger near-term growth in the United States are pushing up
yields, Uno believes waning confidence in the Fed’s policy
manoeuvring is hurting Treasuries.

“(Former Fed chairman Alan) Greenspan was respected by
markets, at least when he was in office. In contrast, (current
Fed chief Ben) Bernanke has been under heavy criticism,” Uno
said.

“The market is probably also disappointed that the Fed did
not say anything about the surge in long-term bond yields in its
statement on Tuesday,” he added.

The Fed’s statement on Tuesday reaffirmed its commitment to
buy $600 billion in bonds, but did not make particular mention of
bond yields.

The 10-year yield has climbed more than 100 basis points
since the Fed announced its $600 billion bond purchase programme
in early November, although bringing down long-term bond yields
is thought to be a major aim of the policy.
(Reporting by Hideyuki Sano; Editing by Joseph Radford)

TREASURIES-Some reprieve in Asia near technical support