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TREASURIES-Bond prices slump after EU/IMF aid deal

By Ian Chua LONDON, May 10 (Reuters) - U.S. Treasury prices slumped on Monday as investors pared their holdings of safe-haven assets after the European Union came up with a $1 trillion rescue package aimed at helping to contain Greece's debt crisis. The package, which include loans and loan guarantees as well as IMF aid, dwarfs any previous attempts by the 27-country EU or the 16-state single-currency group to calm financial markets. Surprised by the size of the rescue fund, market players quickly unwound flight-to-quality bids, causing the benchmark 10-year Treasury note to drop more than a full point in price and the 30-year bond to slump more than 2 full points. Adding more pressure to bonds, U.S. stock index futures rose, pointing to a strong start for Wall Street. "We had a bit of a panic last Thursday spreading across major markets and we're seeing that being rolled back following the announcements overnight," said Kenneth Broux, market economist at Lloyds TSB in London. The European Central Bank also said it would buy euro zone government and private debt, abandoning resistance to full-scale bond purchases. Germany's Bundesbank said euro zone central banks have begun buying government bonds. The benchmark U.S. 10-year note price dived 1-13/32 in price to yield 3.59 percent versus 3.424 percent late on Friday. Last week, the 10-year yield slid to as low as 3.27 percent, its lowest since early December, according to Reuters data, when investors sought the safety of U.S. government debt, fearing the Greek debt problem could develop into a wider credit crisis. Swap spreads narrowed after the Federal Reserve reopened currency swap facilities, established during the 2007-2008 financial crisis, with other major central banks to help ease market strains in Europe. The two-year swap spread -- a gauge of financial system stress -- contracted to 23 basis points from around 35 basis points last week. The two-year Treasury note fell 7/32 in price to yield 0.932 percent, up about 10 basis points from late U.S. trade on Friday. The 30-year Treasury note plunged 2-22/32 in price to yield 4.427 percent versus Friday's 4.274 percent. "I still have doubts whether there is a durable trend to what we're seeing. We'll have to wait for the dust to settle because for me, there's still a number of uncertainties which need to be answered," Broux added. If the selloff were to continue, however, it could make this week's sales of $78 billion in notes and bonds challenging. (Additional reporting by Rika Otsuka in TOKYO) Keywords: MARKETS TREASURIES --------------MARKET SNAPSHOT AT 1002 GMT------------------ Futures continuous contract basis 30-year T-Bond 120-15/32 (-1-17/32) 10-year T-Note 118-18/32 (-1-05/32) Change vs Current Nyk yield Three-month bills 0.15 (+0.02) 0.147 Six-month bills 0.24 (+0.04) 0.244 Two-year notes 100-04/32 (-07/32) 0.932 Five-year notes 100-25/32 (-25/32) 2.333 10-year notes 100-09/32 (-1-13/32) 3.590 30-year bonds 103-08/32 (-2-22/32) 4.427 ----------------------------------------------------------- Reuters Terminal users can see related statistics, contributions and news by clicking on: CBOT T-bond futures CME Eurodollar futures 30 year long bond Simex Eurodlr futures Major yield spreads US bond overview NEWS 3000 CLIENTS CAN RETRIEVE ALL ISSUES BY RIGHT CLICKING ON AND SELECTING BOND ANALYSIS Tokyo Treasury report New York Treasury report All US news US government debt All debt news World Bonds report Debt auctions Dollar Eurobond issues Breakingviews SPEED GUIDES Keywords: TREASURIES XREF (ian.chua@thomsonreuters.com; editing by Tony Austin; +44 207 542 7348; Reuters Messaging: ian.chua.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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