TREASURIES-Prices slip on fiscal hopes, before supply

Tue Nov 20, 2012 10:58am EST

Related Topics

* 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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