REFILE-TREASURIES-Sale of Treasuries picks up on better outlook

Wed Aug 24, 2011 12:06pm EDT

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(Refiles to fix date in dateline)

* Stocks rise 1 percent after CBO sees lower debt-to-GDP

* July U.S. durable goods orders stronger than expected

* Sale of $35 bln 5-yr notes needs yield of 1 pct-Nomura (Changes first paragraph, adds Congressional Budget Office, comment, updates prices)

By Emily Flitter

NEW YORK, Aug 24 (Reuters) - Prices of U.S. Treasuries fell on Wednesday amid a suddenly brightening economic outlook on a report durable goods orders rose more than expected in July.

Major stock indexes gained nearly 1 percent, also pressuring Treasuries, after the nonpartisan Congressional Budget Office forecast a lower debt-to-GDP ratio in the coming years. [ID:nN1E77N0GG]

"We're looking for more confirmation of weakness in the economy; when we don't get it the Treasury bulls start scrambling," said David Coard, head of fixed income sales and trading at Williams Capital in New York.

New orders for long-lasting U.S. manufactured goods rose on strong demand for aircraft and motor vehicles, the Commerce Department said. [ID:nCAT005498]

Inflation concerns drove the 30-year bond to a loss of nearly a point.

"I started noticing Treasuries fade after the stronger-than-expected durable goods number," Coard said. "That's a number that doesn't quite fit the script of those who are economic bears."

He added the Treasury Department's impending sale of five-year notes would also likely contribute to the selling.

"I'm sure the Street is taking the opportunity to beat up the market a little bit to prepare for that auction," Coard said.

Traders were also talking about Friday's highly anticipated speech by Federal Reserve Chairman Ben Bernanke, though there was growing doubt he would offer hints about more economic stimulus.

Speculation has been widespread that Bernanke will use his speech at a central banker conference in Jackson Hole, Wyoming, to signal a new monetary offensive to support a faltering U.S. economy.

Some have predicted the Fed chairman will discuss ways the central bank could tweak the Fed's balance sheet as a means to put further pressure on medium and long-term interest rates and anchor them at low levels.

But confidence is waning that Bernanke would offer a substantial source of hope for markets.

"There really isn't much the Fed is going to do on Friday, and there's a lot of room for disappointment," said Gennadiy Goldberg, a fixed income analyst at 4Cast, Inc. in New York.

The selling in Treasuries improved the prospects for Wednesday's $35 billion five-year note auction. The Treasury Department will hold the second of the week's three scheduled auctions at 1 p.m. (1700 GMT).

A drop in the price of five-year notes is needed, analysts say, for the auction to go well. Nomura Securities, in a note to clients, said the five-year yield, which is currently 0.97 percent, would be more attractive if it could be pushed up to 1 percent or above.

"The five-year auction is unlikely to be as uneventful as the twos on Tuesday, especially as Bernanke's Jackson Hole speech on Friday will be occupying market attention in the background (uncertainty premium)," analysts for Nomura wrote.

The benchmark 10-year Treasury note US10YT=RR fell 10/32 in price and its yield rose to 2.19 percent from 2.16 percent at Tuesday's close.

The 30-year bond US30YT=RR was off 18/32 and yielding 3.52 percent, up from 3.49 percent late on Tuesday. (Editing by Kenneth Barry)

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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