TREASURIES-Prices slip on fiscal hopes, before supply
* Prices slip on stronger data, fiscal hopes * Investors focus on Bernanke speech later on Tuesday * Treasury to sell $13 bln in TIPS reopening on Wednesday * Volume expected to decline before Thanksgiving holiday By Karen Brettell NEW YORK, Nov 20 (Reuters) - U.S. Treasury debt prices slipped on Tuesday for a second day as housing data pointed to an improving market and as investors took more faith that lawmakers in Washington will reach a deal to avert a budget crisis. U.S. housing starts rose to the highest rate in more than four years in October, suggesting that the sector's recovery was gaining steam, even though permits for future construction fell, the Commerce Department said on Tuesday. Bond investors are also gaining more confidence that Congress will reach a deal to avert the so-called "fiscal cliff" of spending cuts and tax hikes due to take effect in early 2013. "It's a continuation of yesterday's trade. There is some reasonable optimism out of Washington that the foundation for some sort of budget is going to come into fruition here," said James Newman, head of Treasuries and Agency trading at Keefe, Bruyette and Woods in New York. "In general things feel a little bit better, which means there is a little bit of selling in the bond market," he said. In the past two weeks Treasuries' yields had fallen to two-month lows as investors fled stocks on concerns that lawmakers would fail to reach a deal. Bonds were also hurt in thin trading on Tuesday as dealers prepared for the sale of $13 billion in new 10-year Treasury Inflation-Protected Securities (TIPS) on Wednesday. "It's a thin market and tomorrow we have to underwrite some duration," said Chris Ahrens, interest rate strategist at UBS in Stamford, Connecticut. Benchmark 10-year Treasuries yields broke above support at 1.64 percent, and may next test support at 1.67 percent. The notes closed on Monday at a yield of 1.61 percent. "I could see us break higher because of the underwriting," said Ahrens. The yield has fallen from 1.75 percent on Nov. 6. Thirty-year bond yields rose to 2.79 percent, up from 2.76 percent late on Monday. Trading volume is expected to continue to decline before the U.S. Thanksgiving holiday on Thursday. Investors are also focused on a speech by Federal Reserve Chairman Ben Bernanke in New York, scheduled for 12:15 p.m. EST (1715 GMT). Market participants will be looking for further signs on whether the U.S. central bank will link policy actions to so-called thresholds -- economic data points, like specific unemployment and inflation rates -- that would signal when the central bank is likely to begin raising interest rates from near zero. Many Fed officials want to adopt them and influential Fed Vice Chair Janet Yellen voiced her strong support last week, making the project sound all but inevitable. "I think Bernanke will try to build upon the platform she delivered last week in terms of putting some more meat on the bones in terms of the timeline of when the FOMC might move to targeting a specified level of employment, rather than a vague moving end date for when short rates will stay very low," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
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