August 18, 2014 / 2:55 PM / in 3 years

TREASURIES-Prices fall on U.S. housing data, waning geopolitical tensions

* U.S. homebuilder sentiment hits 7-mth high, weighs on
Treasuries
    * Ukraine, Middle East tensions ease
    * Losses in UK gilt market also a factor in U.S. bond market

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Aug 18 (Reuters) - U.S. Treasury debt prices fell
on Monday after three days of gains, as risk appetite returned
following upbeat U.S. housing data and easing tensions in the
Middle East and Ukraine, two global sore spots.
    Losses in the UK government bond market also weighed on
Treasuries, analysts said, with the two sectors displaying a
strong correlation. Reuters data showed U.S. and U.K. 10-year
yields have a 94 percent correlation on a 25-day rolling basis.
    Britain's 10-year government bond yields, which move
inversely to prices, rose about 94 basis points on Monday to
2.423 percent.
    Gains came after Bank of England Governor Mark Carney said
in a newspaper interview over the weekend that UK interest rates
may have to rise even before real wages pick up. That was viewed
as backtracking from Carney's comments last week that suggested
the opposite and prompted markets to push back bets on an
initial rate hike. 
    A strong U.S. housing report, however, pushed U.S. 10-year
note and 30-year bond prices to session lows. The data showed
that homebuilder sentiment rose in August to its highest since
January, according to the National Association of Home Builders.
    The NAHB/Wells Fargo Housing Market index rose to 55 in
August from 53 in July, the group said in a statement. It was
the third straight monthly gain, and topped the mean estimate of
analysts polled by Reuters for a reading of 53. 
    "As the only data point for the day, it's notable at least
insofar as it's directionally consistent with the downward
pressure in Treasuries," said Ian Lyngen, senior government bond
analyst at CRT Capital in Stamford, Connecticut.
    U.S. 10-year notes fell 8/32 in price to yield
2.375 percent from 2.339 percent late on Friday. U.S. 30-year
bond prices also slid, dropping 22/32 to yield 3.170 percent
from 3.129 percent the previous session.
    U.S. Treasuries were also pressured by easing global
tensions, analysts said. Last Friday, U.S. bonds got safe-haven
bids after the government in Kiev said its artillery had
partially destroyed a Russian armored column, while Russia
denied its forces had crossed into Ukraine. 
    Investors on Monday breathed a sigh of relief that things
did not escalate further in that region, even as tensions in
Gaza have eased a little bit amid talks in Egypt about ending
the conflict in the Middle East.
    "The geopolitical situation didn't get worse over the
weekend and that weighed on Treasuries," said David Keeble,
global head of interest rates strategy at Credit Agricole in New
York.

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chris Reese)

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