TREASURIES-Prices fall on potential Fed stimulus pullback
* New single-family home sales jump to near 5-year high in May * Durable goods orders for May better than expected * Fed speakers look to soothe jittery markets * Personal consumption expenditures data on Thursday to be scrutinized By Luciana Lopez NEW YORK, June 25 (Reuters) - U.S. Treasuries prices dropped on Tuesday as robust economic data led investors to extend a slump that has taken debt yields to near two-year highs on a possible Fed slowdown in its massive bond-buying program. Investors have shed assets around the world - including stocks and government debt - since Federal Reserve Chairman Ben Bernanke last week said the U.S. central bank could pull back from its $85 billion in monthly purchases of Treasuries and mortgage-backed securities as the economy gains momentum. The data released on Tuesday underscored that improvement. Orders for long-lasting U.S. manufactured goods increased more than expected in May, and a gauge of planned business spending rose for a third straight month. In addition, existing single-family home prices recorded their biggest gain in seven years in April, and U.S. consumer confidence jumped in June to its highest level in over five years. Those figures could confirm expectations for a slowdown in the Fed's bond buying, said Michael Hanson, senior economist at Bank of America Merrill Lynch in New York. "We are not expecting the Fed to announce tapering until December, even though others are calling for earlier," Hanson said. "The Fed is eager to scale back a little, while the market has priced in a rapid exit." Fed speakers late on Monday took pains to reassure the markets that central bank policymakers were not looking to exit all their easing measures anytime soon. Minneapolis Federal Reserve President Narayana Kocherlakota said investors were wrong to view the Fed as having become more keen to tighten policy than it was before last week's policy meeting. Richard Fisher, the hawkish head of the Dallas Fed, added that the U.S. central bank's ultimate "exit strategy" is still a ways out in the future. "Going forward, I think they're going to be more careful how they phrase things or release their statements," Dimitri Delis, interest-rate strategist at BMO Capital Markets in Chicago. "The only big unknown here in my mind is if the economy truly improves, you truly get the traction that you need here, and the Fed can really get out of" quantitative easing, he said. But he also cautioned that with inflation readings low and the housing and equities markets potentially fragile in the face of a Fed exit, policymakers could be cautious about stepping on the brakes. U.S. benchmark 10-year Treasury notes fell 14/32 in price to yield 2.595 percent, up from 2.544 percent late on Monday, when the yield hit its highest in 22 months. The 30-year bond fell 20/32 in price to yield 3.594 percent compared with 3.557 percent late on Monday. As part of its ongoing effort to boost the economy and employment, the Fed on Tuesday bought $1.459 billion of Treasuries, with maturities ranging from February 2036 to November 2042. The afternoon session will see a test of market appetite for Treasuries at their current levels, when the Treasury will sell $35 billion in two-year notes. "The latest FOMC-induced selloff offers attractive yields and the front end of the curve remains an ideal place to fade the supposedly economic-recovery-led selloff," Nomura strategists wrote in a note to clients. The Treasury will also sell $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday. Other data later in the week will also prove key for investors looking to gauge the Fed's exit options. Personal consumption expenditures data on Thursday will be closely scrutinized for signs of whether inflation is stabilizing at lower levels, rising or if price pressures are extending their fall. The index fell to a record low of 1.05 percent over the year in April and a continued fall may make it less likely that the Fed is able to pare back its stimulus program.
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