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Debt futures slide

CHICAGO: U.S. debt futures finished lower, but could grind higher in the near term, traders and analysts said on Tuesday.

"Bonds are fairly valued, and I think it shows in that we had lackluster trade," one bond analyst said.

Some analysts said two- and five-year notes were at low enough levels to attract investors, and speculated that funds may be willing to invest excess cash into Treasuries.

"There is a lot of money looking for a home," James Kenney, head trader on Prudential Securities' government bond desk, said. "Mutual funds and pensions aren't fully invested."

"Portfolio managers are still seen picking the bottoms of these markets," another Treasury market analyst said.

He noted that large hedge funds and commercials have been steadily increasing their long positions in Eurodollar futures since March. From January to March, large commercial interests dumped the net long positions that they had accumulated since last September, he said.

According to the most recent CFTC Commitments of Traders report, commercials' long positions in Eurodollars increased by 82,347 from the beginning of the month.

"The large commercial traders are starting to build net long positions, he said. "The short-end has been beaten down over the last month."

Earlier in the day, however, a large U.S. fund was seen selling 6,000 bond futures, while one bank was reportedly selling bond and buying S&P futures, floor traders said.

The 2.7-percent drop in U.S. chain store sales for the second week of April, according to Lynch, Jones & Ryan Inc's Redbook Retail Sales Index, propped June T-bonds to 110-10/32.

June T-bonds remained below the resistance level of 110-10/32 for most of the day.

At the end of pit trade, June T-bonds were off 8/32 at 110-08/32, 10-year notes 2/32 easier at 108-05/32, munibonds down 6/32 at 112-07/32, December T-bills steady at 94.66 and Eurodollars off a basis point at 94.14.-Reuter