TREASURIES-U.S. bond prices fall on data before 30-year auction
* Thirty-year supply set to sell at highest yield since 2011 * Jump in U.S. jobless claims offsets upbeat retail sales data * Fed buys $3.73 billon Treasuries due 2019-2020 * U.S. to sell $96 bln Treasuries, $16 bln TIPS next week By Richard Leong NEW YORK, Dec 12 (Reuters) - U.S. Treasuries prices fell on Thursday as traders reduced their bond holdings in reaction to stronger-than-expected retail sales data that signaled fourth-quarter domestic growth might not be as weak as some had originally thought. The news on retail sales compounded earlier selling tied to investors making room for $13 billion worth of 30-year bonds, the last leg of this week's supply of $64 billion in coupon-bearing government debt. The stronger-than-expected 0.7 percent rise in consumer spending in stores and gas stations last month also stoked speculation whether the Federal Reserve might decide it will trim its $85 billion of monthly purchases of Treasuries and mortgage-backed securities at its policy meeting next Tuesday and Wednesday. Thirty-two economists expect the Fed to taper its third round of quantitative easing or QE3 in March, while 22 said it would scale back its bond-buying program in January, according to a Reuters poll released on Wednesday. Only 12 economists expected a tapering announcement next week. "It puts in question the belief about the tapering early next year. It also raises the possibility a rate hike might happen sooner rather than later," said Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities in New York. However, the relatively upbeat retail sales figures were countered by a jump in weekly jobless claims that raised some doubt whether the recent pickup in job growth is sustainable. Some economists downplayed the increase - the biggest weekly rise in filings for unemployment benefits in 13 months - due to seasonal distortions from the Thanksgiving holiday in late November. "It was heavily distorted by the holiday. You had a low-ball number last week and a high one this week. You have to take the two weeks together," said Jacob Oubina, senior economist with RBC Securities in New York. On the open market, benchmark 10-year Treasury notes last traded 10/32 lower with a yield of 2.881 percent, up 3.7 basis points from late on Wednesday. The 10-year yield was about 5 basis points below a three-month high set last Friday following a stronger-than-expected November payrolls report. The 30-year bond fared better than short-and-medium term maturities even in the face of the pending supply at 1 p.m. EST (1800 GMT). The increased likelihood of a Fed tapering by early 2014, if the data continue support the view of an improving economy, makes the 30-year bond more appealing than shorter-dated issues as less monetary stimulus reduces the risk of a surge in inflation and shores up the U.S. dollar, analysts said. Thirty-year bond prices slipped 4/32, yielding 3.888 percent, up 1 basis point from Wednesday's close. In "when-issued" trading, traders expected the $13 billion addition to the 30-year issue sold in November would fetch a yield of 3.894 percent. This would be the highest yield at a 30-year auction since July 2011. In November, the 30-year sale cleared at a yield of 3.810 percent. The 30-year bond auction followed a poor $21 billion 10-year note sale on Wednesday and a solid $30 billion three-year note auction on Tuesday. "People are a little scared about the 30-years given what happened to the 10-years," said Aaron Kohli, interest rate strategist with BNP Paribas in New York. He added yield-minded investors might emerge at 30-year sale at these current levels. The supply wave will continue next week when the U.S. Treasury will sell $32 billion in two-year notes, $35 billion in five-year debt, $29 billion in seven-year notes and $16 billion in five-year Treasury Inflation-Protected Securities. The Fed on Thursday bought $3.73 billion in Treasuries due in 2019 and 2020, as a part of its planned $45 billion of purchases of government debt in December.
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