TREASURIES-Edge lower in Asia ahead of auctions
TOKYO, Feb 9 - Ten-year U.S. Treasury notes dipped in Asian trading on Tuesday, as investors braced for the start of this week's $81 billion quarterly refunding.
* Benchmark 10-year notes dipped around 4/32 in price to yield 3.577 percent <US10YT=RR>, up around 1 basis point from late U.S. trading on Monday.
* The quarterly refunding starts with a $40 billion three-year note auction later on Tuesday, followed by a $25 billion 10-year note sale on Wednesday and a $16 billion 30-year bond auction on Thursday.
* Treasuries have been supported in recent weeks as risk assets took a hit from concerns over a White House proposal to curb banks' risk-taking, worries about sovereign debt in the euro zone, and China's efforts to curb bank lending.
* But the trend for Treasuries may change depending on the results of this week's auctions, said Yoshio Takahashi, a fixed-income strategist for Barclays Capital.
* Tuesday's three-year auction is unlikely to fare poorly, given that the sector tends to attract buying by overseas investors especially during quarterly refundings, Takahashi said.
"But if it doesn't attract money from overseas it may lead to speculation that China may not be buying and so on," he said.
* In the when-issued market, traders anticipated the new three-year Treasuries <US3YTWI=TWEB> to be auctioned on Tuesday would yield about 1.320 percent.
* Japanese Finance Ministry data released last week showed that Japanese investors bought a net 906.4 billion yen ($10.14 billion) in foreign bonds in the week of Jan. 24-30, their biggest weekly net buying in about five months.
* The MOF's weekly data does not provide breakdowns on where such investment was headed, and offers few clues on whether such investment was conducted while taking on foreign exchange risks.
* But narrow spreads between Japanese and overseas short-term yields have made it less expensive for Japanese investors to hedge against foreign exchange risk recently, increasing the allure of such currency-hedged investment.
As a result, top Japanese life insurers moved aggressively into hedged foreign bonds last year as an alternative to Japanese government bonds, although that trend could change if U.S. interest rates start to rise. [ID:nTOE60D07I]