MBS Pricing Snapshot

(Reuters) - Investors reduced their Treasuries holdings in advance of $72 billion in supply, which is part of the U.S. government's May quarterly refunding, a survey released on Tuesday showed.

A disappointing U.S. April payrolls report last Friday and uncertainties over the national elections in France and Greece this past weekend had spurred safehaven demand for U.S. and German government debt. This drove benchmark 10-year U.S. yields near three-month lows and Bund futures to record highs on Friday.

The current low levels of Treasury yields cut into the profitability to hold U.S. government securities, with the 10-year yield running at 1.85 percent early Tuesday, analysts said.

The U.S. Treasury will kick off its latest quarterly refunding with a $32 billion sale of new three-year notes at 1 p.m. (1700 GMT) on Tuesday. The share of investors who said they are long U.S. government debt, or holding more Treasuries than their benchmarks, fell to 17 percent on Monday from 23 percent the prior week, J.P. Morgan Securities said in its weekly Treasury client survey.

This is the lowest level of Treasuries longs in five weeks.

As expected, the domestic session has gotten off to a slow start once again, but this time with a slightly more bullish tilt than yesterday's. Case in point, following the stock market's cash open at 9:30, MBS moved up to all time highs once again, currently up 4 ticks at 104-07. 10yr yields are down about 2.5 bps at 1.845.

Even though volumes aren't especially huge, bond markets got a lift overnight from the general European malaise, this time manifesting itself most noticeably in news that Spain may bailout out one of it's troubled banks to the tune of €7-10 bln. Coupled with ongoing political uncertainty following Greek elections and 10yr yields found themselves testing the 1.83 technical floor early this morning (but bouncing).

As has been noted and lamented (see the "Day Ahead" linked below), it's another slow day, but perhaps slightly less slow than yesterday. As evidence of the slowness, the cash stock market open has been the biggest source of inspiration for bond market volume so far this morning, but "stuff" like the Fed Twist buying from 10:15-11:00am and the 3yr Note auction at 1pm stand a decent chance to elicit better participation.