January 28, 2013 / 8:56 PM / 5 years ago

TREASURIES-Prices ease as durable orders rise, supply looms

* Gauge of U.S. business spending plans rises unexpectedly
    * Ten-year yield breaks above 2 percent, first time since
    * Treasury sells 2-year notes at a high yield of 0.288

    By Chris Reese
    NEW YORK, Jan 28 (Reuters) - U.S. Treasury yields rose for a
third session on Monday after a gauge of planned U.S. business
spending rose in December, fueling some expectations economic
growth may be picking up enough that the Federal Reserve may
mull pulling back on economic stimulus.
    Investors were also pushing for price concessions in
auctions of $99 billion of U.S. government debt this week,
although losses were pared after data showing contracts to buy
previously owned U.S. homes unexpectedly fell in December.
    The Commerce Department said on Monday orders for
long-lasting goods rose more than expected in December and
non-defense capital goods orders excluding aircraft, a closely
watched proxy for investment plans, edged up 0.2 percent where
the market had expected a small drop. 
    "Pressure continued to mount in Treasuries with prices
opening in New York slightly lower and heading south from there
after the stronger-than-expected durable goods report," said
Justin Lederer, Treasury strategist at Cantor Fitzgerald in New
York, adding "the market was able to find some stability,
recovering some of its losses, aided by weaker pending home
    The benchmark 10-year note traded 7/32 lower in
price to yield 1.97 percent, up from 1.95 percent late Friday.
The yield pierced 2 percent early in the session for the first
time since last April.
    "Although the (durable goods) report details reveal tepid
business investment - a long-term trend in place since 2010 -
headline strength was enough to spark concerns the Fed may begin
to rethink accommodation at this week's upcoming Federal Open
Market Committee meeting." said Lindsey Piegza, economist at FTN
Financial in New York.
    On Wednesday the Fed caps a two-day policy meeting. Its
policy statement will be scrutinized for signs of whether it is
mulling an end to its latest bond purchase program this year.
    Minutes from the Fed's December meeting, released on Jan. 3,
showed that some voting members of the Fed's policy committee
opposed continuing bond buybacks, sparking speculation that the
U.S. central bank may end its latest round of quantitative
easing before the close of 2013.
    The Treasury kicked off this week's debt supply with $35
billion in two-year notes on Monday. It will sell $35 billion in
five-year notes on Tuesday and $29 billion in seven-year notes
on Wednesday.
    The Treasury sold the two-year notes at a high yield of
0.288 percent, and with a bid-to-cover ratio of 3.77
. Treasury debt prices traded steady at lower
levels after the auction.
    On Friday, the Labor Department's monthly nonfarm payrolls
data could help clarify the state of the U.S. jobs market, which
policymakers have said is a key gauge of the recovery in the
world's biggest economy.
    Some analysts said the stubbornly high rate of unemployment
meant the Fed was unlikely to change its stance any time soon. 
    "Policy seems to be on autopilot until the unemployment rate
gets to 6.5 percent," said Chris Rupkey, chief financial
economist at Bank of Tokyo-Mitsubishi UFJ in New York.
    The jobless rate was 7.8 percent in December.   
    Treasuries sold off last week partly on news that European
banks planned to repay more emergency loans than expected,
suggesting the region's banking sector was on the mend and
cooling demand for lower-risk debt.
    Thirty-year bonds on Monday traded 9/32 lower in
price to yield 3.15 percent, up from 3.13 percent late Friday.
Bond yields reached as high as 3.18 percent on Monday.

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