US debt prices edge up on uncertainty in Europe

NEW YORK: Safe-haven US Treasury prices inched higher on Wednesday as European leaders struggled to contain a sovereign debt crisis.

Worries that Austria's parliament could face delays in approving changes to a euro zone stability fund created a small bid for safe-haven US debt.

While most prices rose, longer-dated debt demand fell, with the 30-year bond price falling one point briefly ahead of the Treasury's 1 p.m. (1700 GMT) auction of 30-year bonds.

A scheduled conference call between the leaders of France, Germany and Greece offered hope that policy makers continued to try to prevent Greece from defaulting on its debt.

The European developments made trading in US Treasuries volatile and far outweighed domestic sources of price movement, including data that showed US consumer spending was flat in August from July.

"The consumer reacted to the debt ceiling, the downgrade and the equity market swoon by basically hunkering down and not spending," said Tom Porcelli, senior US economist at RBC Capital Markets in New York.

"It was flat on the headline, but even more troubling for us is flat on the control number, which excludes gas, building and auto dealers. This is not a good sign for an economy that is struggling."

Traders also said European institutions were actively selling Treasuries to raise cash.

"We're seeing a lot of Europeans potentially having to liquidate dollar-denominated assets to create liquidity," said Joe Larizza, head of governments and agencies trading at Vining Sparks in Memphis.

"I wouldn't call it a crisis yet, but it's getting there."

Moody's Investors Service on Wednesday downgraded two of France's largest banks, but the ratings cut was smaller than expected and did not include a third bank, as many had feared.

US banks were signing private agreements to lend dollars to European financial firms, replacing a source of cash the firms lost when some money market funds stopped buying their commercial paper, according to IFR, a unit of Thomson Reuters.

Benchmark 10-year notes rose 3/32, their yields falling to 1.99 percent from 2 percent on Tuesday.

Thirty-year bonds slipped 1/32 in price to yield 3.33 percent.

The Treasury will sell $13 billion in reopened 30-year bonds today, the final auction this week, with US debt sales totaling $66 billion.

Copyright Reuters, 2011