TREASURIES-Prices fall on strong data, ahead of supply

Thu Apr 17, 2014 1:54pm EDT

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(Adds details on the Ukraine, updates prices)
    * Prices fall as data points to bullish economy
    * Treasury to sell $96 bln new supply next week
    * Bond market to close early Thursday, closed Friday
    * Treasury sells $18 bln, 5-year TIPS

    By Karen Brettell
    NEW YORK, April 17 (Reuters) - U.S. Treasuries prices fell
on Thursday as data pointed towards a strengthening economy, and
as traders prepared for $96 billion in new coupon-bearing supply
next week. 
    Initial claims for state unemployment benefits ticked up
2,000 to a seasonally adjusted 304,000 for the week ended April
12, the Labor Department said on Thursday. They stayed close to
a 6-1/2 year low touched the prior week. 
    The Philadelphia Federal Reserve Bank also said factory
activity in the U.S. mid-Atlantic region picked up in April at a
faster clip than expected. Its business activity index rose to
16.6 from 9.0 in March, topping economists' expectations for
10.0, according to a Reuters poll. 
    "Winter weather disruptions are being reversed with gusto,"
said Michael Englund, chief economist at Action Economics in
Boulder, Colorado.
    The data comes a day after Federal Reserve Chair Janet
Yellen took an optimistic tone on the economy but also stressed
that interest rate increases, still far away, will depend on
employment and inflation targets.
    "There is follow through from yesterday, there was
significant selling in the middle of the curve," said Tom Tucci,
head of Treasuries trading at CIBC in New York. 
    Low liquidity before the early close is likely adding to the
price pressure, he said.
    The bond market closes at 2:00 p.m. EDT (1800 GMT) on
Thursday and will be shut Friday for the Good Friday holiday.
    Five-year and seven-year notes, which are the most sensitive
to interest rate policy, have underperformed in recent sessions,
which some traders attribute to a large investor selling the
notes and buying 30-year bonds in a readjustment of a position
betting on changes in the Treasuries yield curve.
    "There was a large buyer of bonds and seller of notes in the
middle of the curve," said Tom Di Galoma, head of fixed income
rates at ED&F Man Capital Markets in New York.
    The relative cheapening of the intermediate-dated notes may
help attract demand to next week's debt auctions. The U.S.
government will sell $32 billion in two-year notes on Tuesday,
$35 billion in five-year notes on Wednesday and $29 billion in
seven-year notes on Thursday.
    "I think demand will pick up for the five-year sector, the
middle of the curve has gotten beat up over the last five
trading days due to the yield curve flattening," said Di Galoma.
He sees yields continuing to rise into next week's supply and
April's employment report, which will be released the following
week.
    Bonds extended price losses after the United States, Russia,
Ukraine and the European Union on Thursday together called for
an immediate halt to violence in Ukraine, where Western powers
believe Russia is fomenting a pro-Russian separatist movement.
 
    Five-year notes were last down 12/32 in price to
yield 1.74 percent, up from 1.66 percent late on Wednesday.
Seven-year notes fell 19/32 in price to yield 2.30
percent, up from 2.21 percent.
    Benchmark 10-year notes dropped 25/32 in price
to yield 2.73 percent, the highest in a week, up from 2.64
percent.
    The yields have risen from one-and-a-half month lows of 2.60
percent on Tuesday, when concerns about escalating tension in
Ukraine sparked safety buying and a weak New York manufacturing
survey raised fears over the strength of the U.S. recovery.
    Thirty-year bonds fell 1-10/32 in price to yield
3.52 percent, up from 3.45 percent.
    The Treasury also sold $18 billion in five-year Treasury
inflation-protected securities, or TIPS, on Thursday to strong
demand from indirect bidders, which includes many fund managers
and other firms.
    The notes were sold at high yield of minus-0.213 percent,
more than 5 basis points below where it had traded before the
auction, and indirect bidders took the highest ever share, based
on available data going back to 2004. 

 (Editing by Chizu Nomiyama and Bernadette Baum)
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