Treasury yields rise with German bond selloff


U.S. Treasurys yields rose on Wednesday as a selloff in German Bunds caused investors to reduce their holdings in other low-risk government debt, propelling U.S. 30-year yields to their highest levels in five weeks.

A stronger-than-expected rise in domestic existing home sales in March revived bets the Federal Reserve would raise interest rates later this year, overshadowing concerns about the absence of a deal between Greece and its creditors.

Traders had snapped up Bunds since the European Central Bank began its 1.1 trillion euro bond purchase program in March with the aim of helping the euro zone economy.

"Bunds have been super overbought. They now hit some sell stops," said Karl Haeling, vice president at Landesbank Baden-Wurttemberg in New York.

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The 10-year German yield was close to falling to zero last week. It was last 0.156 percent, doubling in three sessions.

Benchmark U.S. 10-year Treasury note yields were up 5 basis points at 1.961 percent, the highest in 1-1/2 weeks, while the 30-year bond yield rose 5 basis points at 2.636 percent after hitting its highest since mid-March.

U.S. yields fell earlier as an intense selling in front-end Eurodollar futures eased and bond dealers bought Treasurys to exit rate locks on corporate bonds they underwrote.

Analysts did not single out a factor for a broad selling in Bunds, Treasurys and British gilts whose 10-year yields jumped nearly 13 points.

"Based on the (market) action, it seemed more technical than anything fundamental," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut. While no deal has been struck, cash-strapped Greece will likely stay solvent until June, while the European Central Bank on Wednesday increased the cap on emergency funds Greek banks can access from the central bank.

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Financial markets have focused on whether Greece's proposed reforms would be adequate to unlock more aid before it runs out of cash. Traders have worried Greece would leave the euro zone bloc, hurting the euro and posing a drag on the global economy. Even if a deal is reached, it will likely be a short-term one, leaving the risk of "Grexit" hanging over markets.

"If the can is kicked down the road, it's a real difficult situation to handicap," said Mike Lorizio, head of Treasurys trading at John Hancock Asset Management in Boston.

Euro zone officials meet in Latvia this week to discuss a rescue deal between Greece and its creditors. It comes amid growing concerns that time is running out for Athens to avoid defaulting on its debt and risk being ejected from the 19-member euro zone.

The Federal Reserve policy meeting next week is also on investors' minds, as they await further hints on the timing of an interest rate rise.

Greek bond yields have risen sharply this week, reflecting the greater risk attached to holding them. Greece's benchmark 10-year bond yielded over 13 percent on Wednesday; by comparison, Spain's 10-year yielded 1.48 percent and Portugal's yielded 2.12 percent.