TREASURIES-Bond prices flat as stock gains offset economic worries

Mon Apr 22, 2013 12:28pm EDT

* Surprise drop in U.S. home resales feeds economic worries
    * Italian president re-election leads to early bond losses
    * U.S. to sell $99 billion in 2-year, 5-year, 7-year debt
    * Fed purchases $3.73 billion in Treasuries in operation


    By Richard Leong
    NEW YORK, April 22 (Reuters) - U.S. government debt prices
were flat on Monday in advance of this week's $99 billion in
coupon-bearing supply, as uneven gains in the stock market
offset worries about the domestic economy losing momentum.
    News of an unexpected 0.6 percent drop in existing home
sales in March added to worries from disappointing quarterly
results from Caterpillar Inc. and other large companies.
The news pushed benchmark yields closer to the four-month low
set a week ago during a safe-haven rally, when gold prices
suffered their biggest one-day loss in 30 years. 
    "The market is ambivalent. It doesn't know where to go,"
said Robbert Van Batenburg, director of market strategy at
Newedge USA LLC in New York. "What's really robust lately has
been Treasuries."
    The Treasuries market succumbed to selling earlier in the
session after the re-election of Italian President Giorgio
Napolitano. The news raised hopes of the formation of a new
government that could solve the fiscal woes that have undermined
investors' confidence in the region. 
    Bets on a functioning Italian parliament after last month's
election helped lift European stock prices and reduce the yield
on 10-year Italian government debt. Investors also
pared bids for safe-haven U.S. bonds.
    The early selling in Treasuries was short-lived as the drop
in prices drew bids from bargain-minded investors in New York
trading. The buying tapered off as the 10-year yield encountered
technical resistance in the 1.67 percent area, analysts said.
    "We already had a tremendous move in rates in the last few
weeks," Newedge's Van Batenburg said. "We will probably grind to
new lows for the year but it will take some time."
    
 
    
    Bond prices were also supported by the Federal Reserve's
regular purchases of debt in its effort to support the economic
recovery that has remained weaker-than-expected.
    The U.S. central bank bought $3.728 billion in Treasuries
that mature in January 2019 to March 2020. 
    As the Fed has tripled its balance sheet since it embarked
on quantitative easing four years ago, the U.S. government has
continued to borrow heavily to finance its budget deficit, whose
size, while declining, still worries investors.
    The U.S. Treasury will auction $35 billion in two-year notes
 on Tuesday; $35 billion in five-year debt
 on Wednesday and $29 billion in seven-year notes
 on Thursday.
    On the open market, benchmark 10-year Treasury notes
 were 1/32 higher at 102-22/32 on below-average
volume, yielding 1.701 percent, about 3 basis points from the
four-month low.
    Treasury Inflation-Protected Securities improved for a
second straight session after last week's dramatic sell-off on
speculation of growing disinflation risk as the economy showed
signs of faltering.
    The spread between 10-year TIPS yields and
regular 10-year Treasury yields expanded to 2.34 percentage
points after falling to 2.28 points on Thursday, which was its
tightest level since August.
    The spread between "real" yields on TIPS and yields on
nominal Treasuries gauges investors' inflation expectations,
which the Fed monitors closely.   
    Wall Street stocks were mixed after opening modestly higher.
The Standard & Poor's 500 index was up 0.14 percent in
midday trading.
FILED UNDER: