February 26, 2010 / 3:51 PM / 9 years ago

TREASURIES-Up slightly after weak home sales, sentiment

* Volume depressed as blizzard covers U.S. Northeast

* Home sales fell in January - Natl Assoc of Realtors

* Consumer sentiment fell in Feb - Thomson/Reuters-U Mich

* Business activity expanded in Midwest - Chicago PMI

(updates prices, comment after home sales, sentiment data)

By Ellen Freilich

NEW YORK, Feb 26 (Reuters) - U.S. Treasuries rose modestly on Friday after news that home sales fell in January and consumer sentiment slipped in February reinforced expectations for subdued economic growth this year.

Trading volume was depressed, however, as a winter blizzard covered the northeastern United States in deep snow.

“(The home sales drop) is not good news (for the economy),” said Timothy Dwyer, chief executive at Entitle Direct Group in Stamford, Connecticut. “It really negates the gains (from) the fourth quarter of 2009.”

The consumer sentiment report was also negative for the economy and, thus, positive for bonds which thrive when investors need a haven from economic uncertainty.

At the long end of the maturity range, the benchmark 10-year note US10YT=RR was up 2/32, its yield easing to 3.625 percent from 3.63 percent on Thursday.

“The rebound in business activity will not last long if consumers can’t provide support,” said Alan Gayle, senior investment strategist at Ridgeworth Investments in Richmond, Virginia.

Bonds appeared to pay less attention to a report showing that business activity in the U.S. Midwest expanded more than economists had forecast in January.

Also, the U.S. Commerce Department said the U.S. economy expanded at a brisker pace than first thought in the final quarter of 2009 as businesses drew down inventories at a much slower pace and boosted investment.

The economy grew at a 5.9 percent annual rate rather than the 5.7 percent pace it estimated last month, still the fastest pace since the third quarter of 2003, it said. The economy expanded at a 2.2 percent annual rate in the third quarter.

The report had no impact on Treasury prices.

“The market is going to be quiet,” said Cary Leahey, economist at Decision Economics in New York. “If there’s any excitement, it will come from overseas with the continual worries about the EU and Greece.”

Greece’s prime minister called on Friday for more solidarity from the European Union over the country’s debt crisis and announced plans to visit Germany, whose backing would be vital for any EU financial aid.

Some of Greece’s EU partners fear market volatility caused by Greece will spread to other countries that use the euro and have big deficits to cover, such as Portugal and Spain.

For the moment, however, the safety bid usually most evident among short maturities, was subdued. Two-year Treasury notes US2YT=RR were unchanged, yielding 0.84 percent.

News that business activity in New York City expanded in February to its best level in more than three years also did not affect Treasuries prices.

Treasuries rallied on Thursday, encouraged by solid demand in an auction of $32 billion of seven-year notes, concluding sales of a record amount of government debt this week.

News that rating agencies said they may downgrade Greece’s sovereign debt rating drew attention to the weak fiscal health of some euro zone countries and played to the advantage of safe-haven bonds. For details see [ID:nLDE6102OP].

Economic data this week, including a drop in consumer confidence and falling home sales have fortified expectations for subdued economic growth this year. On Thursday, the government reported a surprise jump in new jobless claims. It also reported a higher-than-expected jump in orders for long-lasting manufactured goods in January but a drop in a category seen as a proxy for business spending. [ID:nN2597849]

Adding to the supportive tone for Treasuries was testimony from Federal Reserve Chairman Ben Bernanke this week in which he restated he expects the central bank to maintain interest rates at ultra-low levels for an extended period of time.

Thirty-year bonds US30YT=RR were up 7/32, their yields easing to 4.56 percent from 4.58 percent.

At 10:10 a.m. (1510 GMT), U.S. Treasury trading volume totaled $64.305 billion, 26 per cent below its 20-day moving average of $86.443 bln at this time, according to ICAP.

Editing by Kenneth Barry

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