TREASURIES-Prices fall before retail sales, inflation data

Mon May 12, 2014 2:54pm EDT

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(Adds quote, details, updates prices)
    * Yield curve holds at steeper levels
    * Retail sales Tuesday, PPI Wednesday and CPI Thursday
    * Fed buys $2.66 bln notes due 2018

    By Karen Brettell
    NEW YORK, May 12 (Reuters) - U.S. Treasuries prices fell on
Monday before a heavy week of data, including retail sales and
inflation reports, which will be watched for signs of economic
strength and whether price pressures are rising from levels that
are far below the Federal Reserve's targets.
    Government debt yields rose last week as the Treasury sold
new supply and demand for Thursday's sale of 30-year bonds was
muted, with price losses extending through to Monday as dealers
sold bonds they absorbed during the auctions.
    Improving U.S. economic data and subdued demand for long
bonds at last week's auction has also helped the yield curve
steepen from five-year lows, as the Federal Reserve keeps paring
its bond purchases with an eye on interest-rate hikes that many
see as likely to begin next year.
    "The Fed has made it pretty clear that they are going to
continue to taper, so the market is looking for any type of news
or data that might establish the view of when a rate rise might
occur," said Jason Rogan, a managing director in Treasuries
trading at Guggenheim Securities in New York.
    Low inflation is seen as complicating the Fed's ability to
raise rates unless there are signs that it will rise back to the
Fed's 2 percent target.
    This and dovish comments from European Central Bank
President Mario Draghi last week were seen as limiting market
moves even as the yield curve steepened and long bonds
underperformed.
    "Inflation continues to be tame and that puts a curb to some
of the steepening that we're seeing," said Sean Murphy, a
Treasuries trader at Societe Generale in New York.
    The spread between five-year note yields and 30-year bond
yields was around 184 basis points on Monday,
after trading at 174 basis points before Thursday's bond auction
and at 167 basis points on May 2, the flattest since 2009.
    Benchmark 10-year notes were last down 10/32 in
price to yield 2.67 percent, the highest since May 2, and up
from 2.62 percent late on Friday. Thirty-year bonds 
dropped 18/32 in price to yield 3.50 percent, the highest since
April 30 and up from 3.47 percent late on Friday.
    U.S. retail sales data for April will be released on
Tuesday. The U.S. Producer Price Index for April is due on
Wednesday and the Consumer Price Index for April is set for
release on Thursday.
    The Fed bought $2.66 billion in notes due in 2018 on Monday
as part of its purchase program. The U.S. central bank will buy
between $0.85 billion and $1.10 billion in bonds due between
2036 and 2044 on Tuesday.

 (Editing by James Dalgleish and Jan Paschal)
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