* Q2 GDP revision, jobless claims seen giving Fed leeway
* Decent demand seen for Treasury sale of $29 bln in 7-yr
* Stock gains weigh on bonds
* Fed bought $1.566 billion in Treasuries
By Ellen Freilich
NEW YORK, Aug 29 U.S. Treasuries prices were
narrowly lower on Thursday after the government reported
economic data that appeared to give the Federal Reserve leeway
to trim its economic stimulus and as traders positioned for the
Treasury's seven-year note auction.
The Labor Department said jobless claims fell last week, and
the Commerce Department said the economy grew more quickly in
the second quarter than earlier reported - at a 2.5 percent pace
instead of the 1.7 percent reported previously.
The benchmark 10-year Treasury note price was
down 4/32. Its yield stood at 2.79 percent, up from 2.77 percent
late on Wednesday.
"After nearly four years now of a very sluggish recovery, it
appears that we may finally be moving closer toward trend growth
in the United States," said Chris Molumphy, chief investment
officer of the Franklin Templeton Fixed Income Group in San
The prospect of a stronger economy also lifted prices of
riskier assets at the expense of safe-haven U.S. bonds.
On the other hand, the losses in the bond market were
narrow, indicating that investors remained cautious ahead of
next week's influential U.S. employment report and the upcoming
three-day weekend amid heightened geo-political tension.
"We did see some of the flight to safety that occurred
earlier in the week reversed on Wednesday, and the market is
thinking that's enough of a reversal because the Syria situation
is still uncertain," said Anthony Valeri, fixed income
strategist at Boston-based LPL Financial, with $338 billion in
assets under management.
President Barack Obama told Americans a military strike
against Syria is in their interest following a gas attack last
week, and Britain said armed action would be legal, but
intervention looked set to be delayed until U.N. investigators
The Labor Department's report that new claims for
unemployment insurance fell last week was also seen as a
possible sign of faster hiring in August, another element that
could give the Fed room to slim down its economic stimulus.
"The outlook for the economy seems pretty good with these
latest stats, not too cool, not too hot certainly. Is it good
enough for the Fed to taper QE, is the million dollar question,"
said Chris Rupkey, managing director and chief financial
economist at Bank of Tokyo-Mitsubishi UFJ in New York.
CRT Capital Group Treasury strategist David Ader said "to
the extent anyone is still trying to split hairs over tapering,"
the drop in new jobless claims puts "yet another notch in the
coffin of QE."
The GDP report gave a more mixed verdict, with trade and
inventories contributing to the strong upward revision, but
final sales and investment in equipment and software revised
down, Ader noted. The core personal consumption expenditure
inflation index remained at 0.8 percent.
Economists at Goldman Sachs said their tracking estimate for
third-quarter GDP remained unchanged at 1.7 percent.
Meanwhile, traders positioned for the Treasury's auction of
$29 billion in seven-year notes at 1 p.m. (1700 GMT), the third
and final coupon auction of the week.
Cantor Fitzgerald Treasury strategist Justin Leder said the
seven-year note auction would draw "decent" demand.
"Overall, current yields, albeit off their highs - the high
last week was 2.363 percent - will prove attractive," he said,
citing month-end portfolio maturity extensions and uncertainty
about what could develop in Syria, especially ahead of a long
The Fed bought $1.566 billion in bonds maturing from
February 15, 2036 to February 15, 2043.
U.S. financial markets will be shut on Monday for the Labor