TREASURIES-Bond yields up on consumer sentiment; budget talks eyed

Fri Feb 15, 2013 4:29pm EST

Related Topics

* Budget talks could be focal point, may send yields lower
    * Treasury to sell $9 bln 30-year TIPS next week

    By Karen Brettell and Luciana Lopez
    NEW YORK, Feb 15 (Reuters) - U.S. Treasuries prices slid on
Friday on brighter outlooks from consumers, with investors
turning to fiscal talks in Washington as a slate of budget cuts
looms.
    The Thomson Reuters/University of Michigan's consumer
sentiment index rose to 76.3 from 73.8 in January, topping
economists' forecasts of 74.8.
    "The number was stronger than expected and consistent with a
U.S. economy that continues to grow," said Eric Stein, portfolio
manager at Eaton Vance in Boston. That said, "the recovery is
not booming by any stretch of the imagination."
    Benchmark 10-year notes were last down 5/32 in price to
yield 2.014 percent. 
    The notes have tested support at yields of around 2.03
percent to 2.06 percent over the past few days but failed to
break higher, which could set them up for further weakness.
    Next week investors are expected to focus on Washington,
where policymakers are discussing a package of budget cuts set
to kick in March 1. Analysts say the austerity could hurt the
economy.
    But those budget negotiations could ultimately be more about
noise than lasting impact, said Jim Sarni, managing principal of
Payden & Rygel, much the way last year's fiscal cliff fears were
ultimately proven false when policymakers came to an 11th hour
deal.
    "I think we will muddle through those just as we did the
fiscal cliff," he said.     
    A new $9 billion sale of 30-year Treasury
inflation-protected securities (TIPS) next Thursday will also be
closely watched, after months of strong demand for
inflation-linked bonds.
    The auction risks being weak because the debt is offering a
record low coupon of around 0.58 percent, based on Friday's
levels, and as consumer price data will be released earlier the
same day.
    "CPI coming the same day as the auction adds one more
element of uncertainty to the TIPS set up. I think it will make
it harder," said Aaron Kohli, an interest rate strategist at BNP
Paribas in New York.
    Investors wanting to roll existing holdings into the new
issues may also choose to wait for larger auctions of the bonds
in the coming months, Kohli said. 
    Markets also watched a meeting in Moscow of financial
officials from the Group of 20 nations on Friday that is
expected to be dominated by the debate over exchange rates.
 
    At issue is whether the loose monetary and fiscal policies
of the United States, Japan, Britain and the euro zone amount to
strategies of "competitive devaluation" or currency
manipulations intended to boost exports and growth.
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