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Bond Yields Pull Back from Highs as Stock Rally Falters

U.S. Treasury debt prices fell but recovered from earlier lows as the stock market erased its gains and the 30-year bond held key technical support.

Treasuries have been stuck in negative territory as players have been testing yields at levels not seen since early this year, analysts said.

Benchmark 10-year Treasury notes were down 6/32 in price for a yield of 4.86% versus 4.83% late Tuesday. They fell as much as 11/32 with its yield hitting 4.88%, their highest since January. 30-year bonds fell

U.S. stocks wiped out earlier gains as the market digested comments by former Federal Reserve Chairman Alan Greenspan that he feared a "dramatic contraction" in Chinese stocks after the recent boom.

Moreover, Treasuries garnered a round of bids among players who found solace that the June 30-year T-bond futures held above 109.00, which is considered a key technical support among some traders and analysts.

"Technically the market looks very bad. The path of least resistance is towards higher yields," says Adam Brown, co-head of U.S. Treasury trading with Barclays Capital in New York.

Treasuries have been hurt by selling by mortgage investors, who tend to sell as rates rise and encourage borrowers to refinance, and the poor performance by euro-zone government bonds. The June Bund marked a contract low of 112.39.

Euro-zone government bond yields have spiked on continued bullish investor sentiment on the outlook for euro-zone growth, expectations of higher UK rates and the weight of new supply.

But there may be scope for Treasuries to bounce back on the back of month-end buying, although a lot would be data dependent.

"We tend to think that there will be more selling as the week wears on, but we have to remember there will be a huge index push at the end of the month," said Andrew Brenner, market analyst at MAN Financial in New York.

After periods of heavy issuance, as was the case in May, institutional investors tend to add to their holdings of government bonds to keep their portfolios in line with industry benchmarks.