Bond prices decline as investors favor risky assets

NEW YORK (Reuters) - U.S. Treasuries prices fell on Monday, with longer-dated debt yields touching 4-1/2 month highs, as investors further pared bond holdings on signs of an improving U.S. economy and some stabilization of Europe's debt troubles.

The U.S. government debt market last week suffered its worst week since June, as pension funds, insurance companies and other large fund managers began re-allocating money into stocks and other growth-oriented investments.

"Demand for riskier assets is still strong," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

U.S. stocks extended last week's rally, buoyed by Apple Inc's announcement that it will pay a dividend and buy back stock. The Standard & Poor's 500 index <.INX> was less than 10 percent below its all-time closing high reached in October 2007. <.N>

The fall in Treasury prices put benchmark yields on track for a ninth straight session of gains. Although yields were below the peak of 2.36 percent hit on Friday, their break above their 200-day moving average last week suggested they could rise further.

According to Barclays Capital, its Treasury total return index fell 1.12 percent last week, the biggest single-week drop since a 1.47 percent fall in late June.

LeBas estimated last week's drop shaved $61 billion in value from the Treasuries market. There were $10.2 trillion of government debt securities outstanding at the end of February, which could be traded by the public, according to the U.S. Bureau of the Public Debt.

The bond market's dramatic breakout from a tight trading range since late last year has fueled speculation that it is on the brink of a protracted bear market.

Many traders, however, reckon the market is simply correcting after yields fell to rock-bottom levels last year on safety bids as fears grew Greece could undergo a messy sovereign debt default.

"We are sitting up in a new range here. I don't see us up significantly higher," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York.

The bond market retraced its losses earlier on the Federal Reserve's purchase of $5.1 billion of long-dated Treasuries and slightly disappointing data on U.S. home builder sentiment.

Benchmark 10-year Treasury notes last traded near their session lows, down 22/32 in price at 96-23/32 to yield 2.38 percent, up 8 basis points from late on Friday.

The 10-year yield rose to 2.42 percent on Oct 28 and fell to 1.79 percent on Jan 31, according to Tradeweb.

The 30-year bond was last down 1-8/32, yielding 3.48 percent, up 7 basis points from Friday and just slightly below 3.49 percent peak touched last Thursday.

(This story was corrected in the first paragraph to say yields hit 4-1/2 month high)

(Editing by Padraic Cassidy)

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