TREASURIES-Yields rise as stocks gain, data signals economic growth

Mon Apr 14, 2014 2:49pm EDT

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(Updates prices)
    * Yields rise from 1-1/2-month lows
    * U.S. retail sales data points to stronger economy
    * Fed buys $1.02 billion bonds due 2036-2044
    * Inflation, manufacturing data in focus this week

    By Karen Brettell
    NEW YORK, April 14 (Reuters) - U.S. Treasuries yields rose
on Monday as stocks gained and better-than-expected retail sales
data boosted expectations that economic growth is picking up
after months of weakness blamed in part on bad weather.
    Investors are focused on a busy week of data releases for
signs on the strength of the economy as the Federal Reserve
pares its bond purchases and look toward interest rate hikes
that most expect to begin next year.
    Yields hit session highs on Monday after U.S. retail sales
recorded their largest gain in 1-1/2 years in March. Retail
signs account for a third of consumer spending. 
    The data showed that growth is recovering from
weather-related weakness, said Ian Lyngen, an interest rate
strategist at CRT Capital in Greenwich, Connecticut. "It gave a
boost to stocks and weighed on Treasuries," he said.
    Benchmark 10-year notes were last down 5/32 in
price to yield 2.64 percent, after dropping to a 1-1/2-month low
of 2.60 percent in overnight trading.
    Economic data releases including consumer price inflation on
Tuesday and several manufacturing surveys will be in focus for
further signs of economic strength this week. Fed Chair Janet
Yellen is due to speak on Tuesday at a markets conference and on
Wednesday at an economic event.
    Inflation has been running below the Fed's 2 percent target,
which may make it difficult for the U.S. central bank to
increase benchmark interest rates if price pressures don't
increase, as many Fed officials say they continue to expect.
    "So far the mantra from the Fed is that it will improve
'soon'. I think at some point that 'soon' will run out," said
Aaron Kohli, an interest rate strategist at BNP Paribas in New
York. "It's a huge problem for the Fed."
    U.S. inflation-linked bonds have been among the worst
performers since the Fed last year indicated that it would begin
tapering its bond purchases, with investors worrying over what
catalyst will lead inflation higher.
    Demand for the debt will be tested this week when the
Treasury on Thursday sells $18 billion in five-year Treasury
inflation-protected securities (TIPS).
    The sale will come before an early market close on Thursday
and the closure of the bond market the following day for the
Good Friday holiday.  
    The Fed bought $1.02 billion in bonds due between 2036 and
2044 on Monday as part of its ongoing purchases. It will
purchase between $1.75 billion and $2.25 billion in notes due
2020 and 2021 on Tuesday.
    Rising stock markets also reduced demand for Treasuries on
Monday. 
    Treasuries yields had dropped on safety buying last week
after investors nervous over the valuations of some companies
fled stocks and sought out lower-risk investments.
    But that buying ebbed in U.S. trading on Monday, with
earnings from Citigroup helping sentiment after the bank
posted better-than-expected quarterly income as losses on
troubled assets narrowed. 
    Overnight buying sparked by tensions in Ukraine also helped
bonds rally before the U.S. session began.
    Ukraine's president threatened military action after
pro-Russian separatists occupying government buildings in the
east ignored an ultimatum to leave and another group of rebels
attacked a police headquarters in the region. 

 (Editing by James Dalgleish and Leslie Adler)
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