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TREASURIES-Prices fall after lukewarm 10-year auction

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Published: Wednesday, 13 Feb 2013 | 4:15 PM ET
By: Karen Brettell and Luciana Lopez

* Yields rise after $24 billion 10-year note sale

* 10-year notes test technical support levels

* Treasuries temporarily pare price losses on retail sales data

NEW YORK, Feb 13 (Reuters) - Prices of U.S. Treasuries slid on Wednesday after a tepid sale of 10-year debt, with yields testing key technical levels but still unable to break through recent ranges. The Treasury sold $24 billion in 10-year notes at a high yield of 2.046 percent, above what the market had expected.

"We had an average, arguably a bit of a soft reception to the 10-year auction," said Ian Lyngen, senior government bond strategist at CRT Capital LLC in Stamford, Connecticut. "Twenty-four billion is a lot to take down, particularly ahead of $16 (billion) in 30-years tomorrow." The sale was the second round of $72 billion in new coupon supply this week. The Treasury will sell $16 billion in 30-year bonds on Thursday and sold $32 billion of three-year notes on Tuesday. But yields were still within recent ranges, albeit toward the upper end. Benchmark yields reached 2.06 percent early last week, marking the highest since mid-April. "We are at a pretty critical juncture. I think it's going to be important for the market to hold these levels on a short-term basis," said Greg Faranello, a Treasuries trader at Societe Generale in New York. If 10-year note yields hold a break above the 2.03 percent to 2.06 percent level, then technical analysis suggests they may next climb to the 2.20 percent area. Benchmark 10-year notes were last trading off 12/32 in price to yield 2.021 percent, up from 1.98 percent late on Tuesday. The debt briefly pared price losses after data earlier in the day showed little growth in consumer spending in January. U.S. retail sales barely rose in the month as tax increases and higher gasoline prices restrained spending. "The report shows that the economy continues to grow at a modest pace, but the recovery is far from robust," said Eric Stein, a portfolio manager at Eaton Vance in Boston. Investors are now focused on a package of automatic spending cuts due to kick in on March 1, unless lawmakers agree on alternative budget measures or delay negotiations to a later date. The White House has said that cuts will harm economic growth, though many lawmakers say reduced spending is necessary to stabilize the country's rising debt load. Some analysts expect Treasury yields to fall in the weeks heading into the debate deadline as investors adjust for the likely impact of the spending cuts on the economy. The Federal Reserve bought $1.45 billion in bonds due from 2036 to 2042 on Wednesday as part of its ongoing bond purchase program. It will also purchase between $4.75 billion and $5.75 billion in debt due from 2017 to 2018 on Thursday.

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*Yields rise after $24 billion 10- year note sale. NEW YORK, Feb 13- Prices of U.S. "We had an average, arguably a bit of a soft reception to the 10- year auction," said Ian Lyngen, senior government bond strategist at CRT Capital LLC in Stamford, Connecticut. "

   
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