TREASURIES-Yields rise as China data improves, Syria fears ebb
* Yields rise back to near two-year highs
* Chinese data, easing Syria concerns reduce bond demand
* Treasury to sell $13 bln in new three-year notes
* Fed to buy $1-1.5 bln TIPS due 2018-2043
NEW YORK, Sept 10 (Reuters) - U.S. Treasuries yields rose on Tuesday as upbeat Chinese industrial output and retail sales data eased fears over an economic slowdown, while ebbing concerns about conflict with Syria also reduced demand for safe-haven U.S. debt. Stronger-than-expected industrial output reinforced other signs that China's economy was stabilizing after slowing for more than two years, just as major emerging markets brace for potential fallout from an expected trimming of U.S. stimulus.
Concerns about conflict with Syria also fell after U.S. President Barack Obama said on Monday he saw a possible breakthrough in the crisis after Russia proposed that its ally Damascus hand over its chemical weapons for destruction, which could avert planned U.S. military strikes. "We're seeing some modest selling on not a lot of volume. It's related mainly to the better Chinese data and a press story that Syria seems to have agreed to Russia's proposal on chemical weapons. Those two things combined have led to less risk of an economic slowdown," said Ira Jersey, an interest rate strategist at Credit Suisse in New York. Treasuries also came under pressure on Tuesday as investors prepared for the Treasury's sale of new three-year notes, the first sale of $65 billion in new supply this week. The Treasury will auction $31 billion in three-year notes on Tuesday at 1 p.m. EDT (1300 GMT). In "when-issued" activity, traders expected the upcoming three-year offering due September 2015 to sell at a yield of 0.92 percent, three basis points above where the notes were trading in the secondary market. Hedging by dealers and investors preparing for a record breaking corporate bond deal by Verizon was also seen adding to pressure on Treasuries. The company is expected to sell at least $20 billion, with pricing expected on Wednesday, according to IFR, a unit of Thomson Reuters. Benchmark 10-year notes were last down 10/32 in price to yield 2.96 percent, up from 2.91 percent late on Thursday. The yields have dropped from two-year highs of 3.01 percent on Friday, after a weaker than expected payrolls report led investors to believe that the Federal Reserve may cut its bond purchase program by less than previously anticipated, if at all, when it meets next week. Friday's payrolls report showed employers added fewer jobs than expected in August, while jobs gains for June and July were revised downward. Economists told Reuters after the latest jobs report they now expect the Fed to begin paring its purchases of Treasuries and mortgage-backed securities by $10 billion a month, down from the $15 billion median in Friday's primary dealer poll and a wider poll conducted in August. The Fed will buy between $1 billion and $1.50 billion in Treasury Inflation-Protected Securities (TIPS) due from 2018 to 2043 on Tuesday as part of its ongoing purchase program.
Economic data later in the week will also be closely watched for signs of strength in the economy, with retail sales data on Friday likely to be the most influential.