TREASURIES-Prices edge lower on US data, but Ukraine still a factor

Tue May 27, 2014 10:27am EDT

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* U.S. economic data largely upbeat

* Ukraine tensions could boost bonds again

By Gertrude Chavez-Dreyfuss

NEW YORK, May 27 (Reuters) - U.S. Treasury prices inched lower on Tuesday in choppy trading on the back of generally upbeat U.S. economic data, but losses could be limited by the worsening situation in Ukraine.

Bond investors were cautious overall and any selling was likely to be short-lived, analysts said, adding that volume was moderate following a long holiday weekend in the United States.

"There is really no sell-off in fixed income," said Tom di Galoma, head of fixed income at ED&F Man in New York. "Any kind of shallow sell-off, buyers tend to come right back in."

In mid-morning trading, prices on 30-year Treasury bonds were down 2/32 in price to yield 3.400 percent, compared with 3.397 percent on Friday. Benchmark 10-year U.S. Treasury notes were down 3/32 in price to yield 2.544 percent, from 2.535 percent late on Friday.

On Tuesday, data showed orders for long-lasting U.S. manufactured goods unexpectedly rose 0.8 percent in April, compared with forecasts for a 0.5 percent decline. The Conference Board's index of U.S. consumer confidence, meanwhile, rose to 83.0 in May from a revised 81.7 in April.

The numbers also showed that U.S. home prices continued to rise, beating expectations. The S&P/Case Shiller composite index of 20 metropolitan areas gained 1.2 percent in March on a seasonally adjusted basis. A Reuters poll of economists forecast 0.7 percent.

Firmness in the U.S. stock market also put pressure on bonds.

ED&F's Di Galoma, however, said bonds could get flight-to-quality bids given geopolitical tension in Ukraine.

Fighting continued in Ukraine on Tuesday, with the country's forces battling separatists in the city of Donetsk for a second day after inflicting heavy losses on the rebels. The Ukraine government vowed to press on with a military offensive "until not a single terrorist" was left.

He added that in general there has been demand for long-term Treasuries for month-end purposes. (Editing by Chizu Nomiyama)

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