TREASURIES-U.S. bond prices slip after recent rise; auction tepid
* Treasury sells $35 bln 5-year debt at high yield of 1.624 pct
* NATO says evidence points to use of chemical weapons in Syria
* Contracts to buy previously owned U.S. homes fell for second month in July
NEW YORK, Aug 28 (Reuters) - Prices for U.S. Treasuries slid on Wednesday, after three days of gaining in part because of fears over a possible Western strike against Syria, with a debt sale coming in lackluster.
Worries about a multi-national strike on Syria in response to chemical weapon use by the government helped drive investors out of risk assets and into safe havens such as U.S. government debt earlier this week.
But those fears abated somewhat on Wednesday, analysts said.
"I think some of the safe haven bid was taken out of Treasuries, or at least didn't continue," said Cantor Fitzgerald Treasury strategist Justin Lederer.
A debt auction underscored tepid appetite. The Treasury sold $35 billion of debt at a high yield of 1.624 percent.
"The weakness of this auction was evident in the statistics with a lower bid-to-cover (2.38 vs 6-month average of 2.69) and lower customer demand (directs and indirects combined at 53 percent vs 6-month average of 60 percent)," wrote Nomura U.S. rates strategists in a note to clients.
"Also notable is that even after meaningful outright yield concession, the auction tailed 0.7 basis point, the largest tail for a 5-year auction since July 2012," the Nomura note added.
The auction, announced as a sale of five-year debt, wound up being a re-opening of a previous seven-year issue, as the Treasury had previously announced might happen because the notes had the same coupon rate and maturity.
The price of the benchmark 10-year Treasury note fell 21/32 to yield 2.785 percent on Wednesday, from 2.71 percent late on Tuesday.
Still, bond prices could resume their rise soon, said James Sarni, managing principal at Los Angeles-based Payden & Rygel with $84 billion in assets under management.
"The rally in bonds is going to continue because the bigger picture here is that the macroeconomic background does not seem consistent with a material change in Fed policy," he said.
Investors are waiting for the Federal Reserve to slow its $85 billion per month in buying of Treasuries and mortgage-backed securities. While economists in a Reuters poll see a start date at the Fed's next meeting on Sept. 17-18, economic data have been mixed enough to allow for wider-ranging views.
Those data include a sharp drop in U.S. home sales in July and in orders for long-lasting manufactured goods. Contracts to buy previously owned U.S. homes also fell for the second straight month in July, according to the National Association of Realtors, hurt by higher mortgage rates.
"Finally, Congress will return to Washington and we face arguments about the debt ceiling and a possible government shutdown," he said. "There will be talk and threats about defaulting on our debt. You shake all that up and what comes out is more flight to quality."
Sarni said 10-year Treasury yields could ease to the 2.5 percent area by year-end.
Meanwhile, in technical terms, the 2.70 percent yield area "has held as a top for the 2-1/2 percent 10-year note since falling below there on Aug. 13, while the 2.75 percent area is offering support currently ahead of the 2.80 percent yield area that had been resistance," said John Canavan, fixed-income analyst at Stone & McCarthy Research Associates.
As part of its ongoing stimulus program, the Federal Reserve Bank of New York said it bought $3.297 billion in Treasuries maturing between August 2021 to August 2023.