Treasuries slip, focus on equity performance

LONDON: US Treasury futures slipped in European trading after better appetite for riskier assets pushed debt prices through closely watched levels, adding to the selling pressure, with equity performance set to drive market action.

Core debt prices in Europe fell before Wednesday's crucial European Union summit, with markets keenly awaiting any sign that policymakers were nearing a deal that could draw a line under the region's long-running debt crisis.

Treasury futures slipped 5/32 to 128-06/32, as 10-year cash market yields breached 2.25 percent, triggering fresh selling for investors.

"We broke through 2.25 percent on 10-year yields and we broke through some support levels on 10-year futures at 128-10/32. Now those have broken, leveraged selling has emerged," said Craig Collins, trader at Bank of Montreal.

Corporate earnings data from the US was likely to set the tone for trading later in the day, with the US consumer confidence report also being watched for any signs of improvement.

"We've got another barrage of corporate earnings data and so the Treasury market will be pretty much fixated on how the S&P, Dow Jones and Nasdaq (equity indexes) do on the day," said Marc Ostwald, strategist at Monument Securities in London.

Consumer confidence data due at 1400 GMT was forecast to show a modest rebound to 46, from September's 45.4. Any greater rebound could give further cause to pare back bearish positions on the US economy, leading to a mild sell off in US debt

"If thing aren't quite as bad as people have been making out then it basically puts upward pressure on Treasury yields and on equity prices," Ostwald said.

The Treasury is set to sell $35 billion in two-year notes on Tuesday at 1700 GMT, with yields around 30 bps, above recent auction levels, likely to attract solid bidding.

Sales later this week come in the shape of $35 billion in five-year notes on Wednesday, and $29 billion in seven-year notes on Thursday.

Copyright Reuters, 2011