Treasury Prices Rise On Europe Worries

U.S. Treasury prices rose on Wednesday as more signs of strain emerged in the European banking system.

The 30-year bond briefly posted price gains of more two points. Gains accelerated around the time the Federal Reserve began its sale of U.S. Treasurys from its balance sheet, and the euro fell below $1.30.

News that European lenders parked a record amount of cash with the European Central Bank rather than lend it to each other got investors worried.

Also, the yield on Italy's 10-year government bond was still dangerously high at 6.97 percent, even after two successful auctions of short-term debt.

Earlier in the day "we saw pretty huge demand at the Fed sale this morning, much more than normal coverage," said Gennadiy Goldberg, interest-rate strategist at 4Cast, Inc. "It just shows that a lot of people are trying to get their hands on safety before the end of the year."

The Fed sold $8.63 billion in Treasury notes with maturities ranging from May 2014 to Nov. 2014.

The rally in Treasurys took both 10-year notes and 30-year notes back below the psychologically significant levels of 2 percent and 3 percent, respectively.

The 10-year Treasury yield fell to 1.93 percent from 2 percent late Tuesday as the price rose 75 cents per $100 invested.

  
Thirty-year Treasury yields fell to 2.92 percent from 3.03 percent as its price rose $2.19 per $100 invested.

"Trading is very technically oriented," said Chris Ahrens, interest-rate strategist at UBS Securities in Stamford, Connecticut.

"Whenever the euro weakens, there's buying in 10s. That could be algorithmic trading, or it could just be reactive trading. I don't know," he said.

Traders at primary dealers said the market was still very quiet, and small purchases were having an outsized effect on price movement.

Adam Brown, co-head of Treasury trading at Barclays Capital in New York, said trading was "extremely quiet," but traders who specialized in notes with maturities inside the Fed's selling range for the day were likely to enter the market, even if it was the only time this week they appeared.