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TREASURIES-Prices retreat on improving U.S. outlook
April 29, 2014 / 7:10 PM / 4 years ago

TREASURIES-Prices retreat on improving U.S. outlook

* U.S. 30-year, 10-year yields touch one-week highs

* U.S. home prices flat in Feb, consumer confidence slips

* Apple deal to briefly pressure Treasuries (Updates prices, adds fresh comment on Apple)

By Gertrude Chavez-Dreyfuss

NEW YORK, April 29 (Reuters) - U.S. Treasury prices tumbled for a second straight session on Tuesday, pressured by a brighter U.S. economic outlook, with the Federal Reserve expected to continue reducing its bond purchases and investors bracing for a strong jobs report later this week.

With the world’s largest economy seemingly on a stable recovery path, the Fed, which began its two-day meeting on Tuesday, is expected to carry on tapering its asset-buying, a negative scenario for Treasuries. The Fed is also unlikely to alter its forward guidance on interest rates.

Yields on U.S. 30-year bonds and benchmark 10-year notes hit roughly one-week highs, also helped by the market’s diminishing focus on geopolitical tensions between Ukraine and Russia. The United States on Monday imposed additional sanctions on Russia many thought as too slight.

Volume was generally light on Tuesday with Japanese markets closed due to a public holiday. Analysts said Japanese investors, which are huge market participants, tend to buy Treasuries on downticks.

David Thielke, interest rate strategist at Nomura Securities in New York, said the sell-off in Treasuries was a combination of several factors. “We saw sanctions yesterday on Russia, but this is already the second round, and we haven’t seen any real backlash or major impact.”

At the same time, Thielke said expectations on the U.S. employment report, due out on Friday, are quite high.

A Reuters poll showed economist expect the U.S. economy to have created 210,000 jobs in March.

In afternoon trading, the benchmark 10-year U.S. Treasury note was down 4/32 in price to yield 2.69 percent, compared with 2.70 percent late Monday. Yields rose as high 2.73 percent, the highest since April 24.

Prices of 30-year Treasury bonds fell 17/32 to yield 3.48 percent, little changed from that of the previous session. U.S. 30-year yields touched a peak of 3.52 percent, the highest level since April 22.

The five-year note, meanwhile, slipped 2/32, yielding 1.73 percent.

U.S. Treasury yields pulled back from their highs, however, after a flat reading on U.S. home prices in February and a dip in the consumer confidence index.

In terms of supply, the Treasury’s auction of $15 billion 2-year floating rate notes was well-subscribed. It priced at a high discount rate margin of 0.069 percent, versus 0.074 percent just ahead of the bid deadline. Bids totaled $69.6 billion for a solid bid-to-cover ratio of 4.64.

The New York Fed, meanwhile, bought $2.286 billion in notes dated from May 15, 2021 through February 15, 2024, with investors offering $9.68 billion. Analysts said the buyback helped Treasuries trim losses.

Apple Inc was also in the spotlight in the bond market in a $12 billion seven-tranche debt deal. Pricing is expected to be tight, reflecting strong demand of about $40 billion for the company’s issue.

Kim Rupert, managing director for fixed income at Action Economics in san Francisco said the Apple deal is expected to weigh on Treasuries.

“Treasuries are used a lot to hedge the issue. So dealers and underwriters will lighten up their inventory -- sell Treasuries -- to make room for the Apple bonds,” Rupert said. “They will also sell Treasuries if they don’t have the cash to purchase the Apple deal.” (Editing by Diane Craft)

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