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TREASURIES-U.S. bond prices fall as stock gains pare bids
February 19, 2013 / 9:32 PM / 5 years ago

TREASURIES-U.S. bond prices fall as stock gains pare bids

* Resilient stock market trims bids for low-yielding bonds
    * Encouraging German data put early selling pressure on
    * Worries about U.S. spending cuts limit bond losses
    * Fed buying longer-dated debt in four operations this week

    By Chris Reese and Richard Leong
    NEW YORK, Feb 19 (Reuters) - U.S. government debt prices
fell on Tuesday as gains in the stock market reduced the appeal
of safer but low-yielding bonds, but worries over the possible
federal spending cuts and outcome of the upcoming Italian
election limited bond losses.
    Analysts downplayed the day's decline as they await release
of the minutes of the Federal Reserve's January policy meeting
on Wednesday and a slew of economic data on Thursday.
    Tuesday's mildly disappointing data on U.S. housing from
National Association of Home Builders were not enough to scuttle
the rise on Wall Street. 
    "Bad news can't seem to take stocks down. People are saying,
'I need to get into stocks and not stick my money in bonds
earning 2 percent," said Stan Shipley, bond strategist at ISI
Group in New York.
    On below-average volume, benchmark 10-year Treasury notes
 last traded 7/32 lower in price for a yield of 2.03
percent, up 2.5 basis points from Friday. The 10-year yield has
been bouncing in a 20 basis point range in the past three weeks.
    The 30-year bond was down 20/32 in price,
yielding 3.213 percent, up 3.3 basis points from Friday.
    Wall Street stocks ended higher, hovering near five-year
highs, with the Standard & Poor's 500 gaining 0.7 percent
on the day. 
    U.S. financial markets were closed on Monday for the
Presidents Day holiday.
    Treasuries dipped in price overnight after a measure of
German analyst and investor sentiment soared to the highest
level since April 2010, according to the ZEW think tank. The
data boosted the euro and European shares and caused a temporary
dip in safe-haven German Bunds and U.S. debt. 
    But the price dip was immediately met by buying interest
from investors concerned that an economic recovery could be
derailed by across-the-board U.S. government spending cuts of
about $85 billion that could take effect on March 1 if lawmakers
fail to agree on a plan to avoid them.
    Also supporting Treasuries, one of the main assets used as a
refuge from the euro zone's debt troubles, were concerns that
Italian elections on Feb. 24-25 could result in a fragmented
parliament that could hamper future reform efforts.
    Investors also will watch closely several releases later in
the week, with housing starts and homes sales data on Wednesday
and Thursday, along with January producer and consumer price
indexes. Minutes from the Federal Reserve's latest policy
meeting in January will also come out on Wednesday afternoon.
    Earlier Tuesday, the National Association of Home Builders
said U.S. home builder confidence in the market for single
family homes unexpectedly dipped February from last month's
seven-year high, as they faced higher costs. 
    In the meantime, steady bond purchases from the Federal
Reserve will keep a lid on bond yields. The U.S. central bank
has been accumulating Treasuries and mortgage bonds in a bid to
hold down long-term borrowing costs to help the economy.
    On Tuesday, the Fed purchased $1.45 billion of U.S.
government debt maturing February 2036 through February 2043. It
will buy longer-dated debt in three more operations through the
rest of the week. 
    "The Fed is still a big marginal buyer. There are still
other natural buyers out there because they need the yield,"
said Justin Lederer, Treasury strategist at Cantor Fitzgerald in
New York.

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