February 15, 2013 / 4:25 PM / in 5 years

TREASURIES-Bond yields edge up as consumer sentiment improves

* Prices fall after consumer sentiment improves
    * Budget talks could be focal point, may send yields lower
    * Treasury to sell $9 bln 30-yr TIPS next week

    By Karen Brettell
    NEW YORK, Feb 15 (Reuters) - U.S. Treasuries prices slipped
on Friday, though yields held under key support levels at
10-month highs, after data showed improving U.S. consumer
sentiment and following the sale of $72 billion in new supply
this week.
    Budget talks in Washington are expected to dominate trading
in the coming weeks and may bring a bid back to the bonds.
    The Thomson Reuters/University of Michigan's consumer
sentiment index rose to 76.3 from 73.8 in January, topping
economists' forecasts of 74.8.
    "The number was stronger than expected and consistent with a
U.S. economy that continues to grow," said Eric Stein, portfolio
manager at Eaton Vance in Boston. That said, "the recovery is
not booming by any stretch of the imagination."
    Benchmark 10-year notes were last down 9/32 in price to
yield 2.04 percent. 
    The notes have tested support at yields of around 2.03
percent to 2.06 percent over the past few days but failed to
break higher, which could set the notes up for further weakness.
    The next focus for the market will be negotiations in
Washington over automatic budget cuts, scheduled to come into
effect on March 1. If implemented, the cuts are expected to
reduce economic growth, which could send rates back lower.
    "The sequester is the big budget thing going forward," said
Alan De Rose, head trader of government trading and finance at
Oppenheimer & Co in New York.
    "I think the combination of the Fed buying and some of the
headwinds that are going to come from some level of budget cuts
is not going to let rates go up too much," he added.
    A new $9 billion sale of 30-year Treasury
Inflation-Protected Securities (TIPS) next Thursday will also be
closely watched, after months of strong demand for
inflation-linked bonds.
    The auction risks being weak as the debt is offering a
record low coupon of around 0.58 percent, based on Friday's
levels, and as consumer price data will be released earlier the
same day.
    "CPI coming the same day as the auction adds one more
element of uncertainty to the TIPS set up, I think it will make
it harder," said Aaron Kohli, an interest rate strategist at BNP
Paribas in New York.
    Investors wanting to roll existing holdings into the new
issues may also choose to wait for larger auctions of the bonds
in the coming months, Kohli added.
    Markets also were focused on a meeting in Moscow of
financial officials from the Group of 20 nations on Friday, that
is expected to be dominated by the debate over exchange rates.
    At issue is whether the loose monetary and fiscal policies
of the United States, Japan, Britain and the euro zone amount to
strategies of "competitive devaluation" or currency
manipulations intended to boost exports and growth.
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