CORRECTED-TREASURIES-Bond prices edge up before 5-year note sale

Wed Apr 24, 2013 3:52pm EDT

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(Corrects day in sixth graph)
    * U.S. durables goods post biggest fall since August
    * U.S. Treasury to sell $35 billion 5-year note supply
    * Hopes for new Italy government spur early bond sales
    * No lingering effect after Tuesday's tweet-linked rally

    By Richard Leong
    NEW YORK, April 24 (Reuters) - U.S. Treasuries prices edged
up on Wednesday as unexpectedly weak data on durable goods and a
wobbly stock market supported safe-haven demand for bonds,
overcoming selling pressure tied to an upcoming auction of
five-year notes. 
    The U.S. Treasury Department will sell $35 billion in new
five-year notes at 1:00 p.m. (1700 GMT), following average
results at a two-year note sale on Tuesday. It will complete
this week's debt offerings with a $29 billion seven-year debt
auction on Thursday.
    The bond market has remained locked in a tight trading range
since early April with benchmark yields hovering near their
lowest levels since December.
    Recent disappointing data in the United States, Europe and
China have fueled bets of a spring global slowdown for a third
straight year, an occurrence that would force central banks to
take action. 
    "Poor economic data could lead to some enhanced action from
central banks, which has been bullish for stocks and other risk
assets" and limit a further decline in Treasury yields, said
Mike Lorizio, head of Treasuries trading at Manulife Asset
Management in Boston.
    Wednesday's report on durable goods orders that showed a 5.7
percent fall in March - the biggest drop since August - was the
latest in a wave of disappointing data. 
    News that Italian President Giorgio Napolitano had picked
center-left duty leader Enrico Letta as the new premier and had
asked him to form a new government pressured U.S. bond prices
downward and briefly lifted benchmark yields from their lowest
levels of the year set on Tuesday. 
    The move stoked hopes that national leaders would turn their
focus toward solving the fiscal problems that have bogged down
Italy, the euro zone's third-biggest economy, though doubts
persisted over whether Letta could cobble together a broad-based
coalition for a confidence vote by next week. 
    "There are changes coming in Italy, but they're painfully
slow," said Stan Shipley, bond strategist at the ISI Group in
New York.
    Benchmark 10-year Treasury notes were up 1/32 in
price at 102-22/32 to yield 1.701 percent.
    The 10-year yield was about 6 basis points above a
four-month plus low of 1.643 percent set on Tuesday after a
false tweet from the Associated Press about explosions at the
White House, which briefly sent stock prices plunging and bond
prices soaring. 
     
 
    There was little evidence of the tweet-related sell-off in
Wednesday's trading. "Today it's not an issue," Shipley said.
    Uncertainties over the formation of an Italian government
and the discouraging U.S. durable goods report, however, were
not enough to snuff out investors' interest in stocks, which
limited a rise in Treasuries prices, analysts said.
    This week's $99 billion worth of longer-dated Treasuries
supply has also capped any sustained upward move in bond prices.
    In the "when-issued" sector, traders expected the upcoming
five-year note issue due in April 2018 to sell at
a yield of 0.713 percent, lower than the 0.760 percent yield at
the five-year auction in March.
    The Federal Reserve bought $1.58 billion in government debt
that will come due in February 2037 to August 2042. The
operation is the latest in the central bank's program intended
to hold down interest rates in an effort to support the economic
recovery. 

 (Editing by Bernadette Baum)
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