TREASURIES-Bonds slip on U.S. data before debt sale

Tue Sep 25, 2012 12:23pm EDT

Related Topics

* U.S. home prices grew modestly in Aug: Case-Shiller
    * U.S. consumer mood rosiest in 7 months-Conference Board
    * Report about ECB bond program spurs earlier bond bids
    * U.S. to sell $35 billion in new 2-year notes


    By Richard Leong
    NEW YORK, Sept 25 (Reuters) - U.S. government debt prices
dipped on Tuesday, snapping a six-session winning streak, as
encouraging U.S. housing and consumer data reduced worries about
slowing global growth and counteracted anxiety about Europe's
debt troubles.
    Traders and investors also sold bonds to make room for $35
billion in a two-year Treasuries sale this afternoon, part of
this week's $99 billion in note offerings.
    "The market is positioning for this week's Treasuries
supply," said John Canavan, market strategist at Stone &
McCarthy Research Associates in Princeton, New Jersey. "We are
also seeing a bit of improvement in the data."
    Despite lingering high unemployment, signs of a tentative
recovery have arisen in the housing market and in the mood of
shoppers. 
    Home prices across 20 major U.S. cities showed a 1.2 percent
year-over-year rise, S&P/Case-Shiller said on Tuesday.
 
    A growing belief in an improving housing sector might have
boosted consumer confidence, which the Conference Board said
rose to a seven-month high in September. More home building and
sales should bode favorably for gross domestic product.
    Housing "will no longer be a drag on GDP going forward,"
said Dan Heckman, senior fixed income strategist at U.S. Bank
Wealth Management in Minneapolis. "Things are not bad enough for
yields to go much lower."
    Still worries about Europe's debt crisis worsening and
hurting the global economy limited the decline in bond prices,
analysts and traders said.
    The perceived stalling by Spain in asking for a full-blown
financial rescue, together with fading optimism about more
stimulus from the Federal Reserve and other major central banks,
 have underpinned a safehaven demand for Treasuries and German
Bunds since last week. 
    "Despite all the policy accommodation from major central
banks, there is a question about global demand," said Larry
Milstein, head of government and agency trading at R.W.
Pressprich & Co in New York. 
    Earlier, a German newspaper reported the European Central
Bank and the German central bank are getting lawyers to verify
the legality of the ECB's new bond purchase program.
 
    While it is unlikely such a move would scuttle the ECB's
program, "it clearly causes more uncertainty," Milstein said.
    On Tuesday, benchmark 10-year notes were down
1/32 in price at 99-5/32, yielding 1.718 percent, up
fractionally from Monday's close.
      
 
    Over the previous six sessions, U.S. and German government
debt prices rebounded, recovering from a selloff in which the
10-year yield rose as high as 1.894 percent on Sept. 14, the day
after the Fed said that it would buy $40 billion in
mortgage-backed debt a month to bring down the country's
stubbornly high unemployment rate.
    In Tuesday trade, the 30-year bond traded 4/32
lower at 96-29/32 to yield 2.907 percent, up 0.6 basis point
from late Monday.
    Traders expect the upcoming two-year note issue to sell at a
yield of 0.2750 percent, near the yield level at
the two-year auction held in August.
    Treasuries slightly underperformed German Bunds, as their
10-year yield spread widened about 0.5 basis point to 15.4 basis
points.
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