TREASURIES-Bonds up as stock losses, euro zone concern revive bid
* Spain, Italy political news revives bids for bonds
* U.S. December factory orders rise 2.2 pct, less than expected
* Bond yields hit nine-month highs in overnight selloff
* Fed purchases $3.23 billion Treasuries due 2020-22
NEW YORK, Feb 4 (Reuters) - U.S. Treasuries prices rose on Monday as higher yields attracted buyers and stock market losses and political news from Europe fed a bid for safe-haven U.S. debt. Wall Street stocks pulled back from five-year highs while benchmark Treasury yields eased back below 2 percent after climbing overnight to nine-month highs. A "2-percent (10-year yield) is a good buying opportunity for most investors." said Sharon Stark, chief fixed-income strategist at D.A. Davidson in St. Petersburg, Florida. Through Friday, Treasuries prices suffered their second weekly decline on an improved outlook for the U.S. economy and less anxiety about fiscal problems in Europe. But the push of the Dow Jones industrials above 14,000 for the first time since October 2007 on Friday was challenged by worries about possible political shake-ups in Europe. Spain's opposition party on Sunday called for the resignation of Prime Minister Mariano Rajoy over a corruption scandal, as Rajoy sought to pull the euro zone's fourth-biggest economy out of five years of financial woes. The calls for Rajoy's resignation pushed Spanish 10-year bond yields to six-week highs. Rajoy denies any wrongdoing. In Italy, the increased popularity of former prime minister Silvio Berlusconi and his chances of regaining power also raised worries about Italy's struggle to fix its fiscal problems.
"The primary catalyst for today's move up in U.S. Treasuries prices was renewed concern about potential headline risk coming from the euro zone, though not to the degree we experienced last summer," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. "Then in the U.S., factory orders came in below consensus estimates and that set the stage for the 10-year Treasury yield to pull back a little bit to below 2 percent after having gone above 2 percent," she said. U.S. factory orders rose 1.8 percent in December, less than the 2.2 percent increase forecast by analysts polled by Reuters. At the same time, the Commerce Department also issued a revised estimate of U.S. business investment plans, showing orders in this area slipped 0.3 percent in December, contradicting the 0.2 percent gain reported initially. The rolling of put options on the iShares Barclays 20+ Year Treasury Bond fund TLT.P seen last week continued on Monday as TLT shares rose 1.35 percent to $117.11. By rolling to the March $116 strike puts from the Feb $120s, spread traders seemed to be expressing the view that Treasury bonds might see more losses over the next 39 days, even as the TLT sees a modest flight-to-safety bid amid renewed worries about Europe on Monday, said WhatsTrading.com options strategist Frederic Ruffy. But James Camp, managing director of fixed income at St. Petersburg, Florida-based Eagle Asset Management, the asset management arm of Raymond James with about $23.5 billion in assets under management, said volatility data "do not suggest a massive short trade in Treasuries at all. "The long short commitments of traders is something we look at and the dealer community has not set itself up for a big move higher in rates," he said. "Even the demand for insurance against rates going up has ebbed since last week," Camp said. "We began the year with a pretty bearish bias for Treasuries, but that bearish trade is slowing down right now." Camp said one of the stories of the last six weeks has been the relaxing of a flight-to-safety trade amid relief that the U.S. government avoided some - though not all - of the fiscal restraint that would have occurred had no agreement been reached between the White House and Congress. He said the most recent move - in which 10-year yields eased back below 2 percent - acknowledges that the unwinding of the safety trade went a bit too far. "Talk of a great rotation out of bonds into stocks is premature," Camp said. "The Fed is going to be buying and the economic fundamentals case has not changed, so a 2 percent 10-year yield is a buying opportunity." Benchmark 10-year U.S. Treasury notes rose 16/32 in price to 96-31/32. Its yield eased to 1.96 percent from 2.02 percent on Friday. The 10-year yield earlier climbed to 2.059 percent, its highest since last April 12 when it touched an intraday peak of 2.065 percent, according to Reuters data. The 30-year bond rose 29/32 in price, its yield easing to 3.16 percent from 3.22 percent at Friday's close. The yield on 10-year Italian government notes rose 15 basis points near 4.50 percent, the highest since late December, while the yield on 10-year Spanish sovereign debt jumped a quarter point to 5.44 percent. Other factors that could propel bond prices higher this week included the absence of new longer-dated government debt supply and regular bond purchases by the Federal Reserve aimed at supporting the economic recovery, traders and analysts said. The U.S. central bank will buy $3.23 billion in Treasuries that mature between February 2020 and November 2022, part of its $44 billion purchase of Treasuries in February. Moreover, some analysts cautioned the lack of a deal in Washington to avert deep spending cuts set to kick in next month could be a drag on the U.S. economy. These cuts, which would total $112 billion in 2013, will likely hold bond yields at their current levels, they said.