TREASURIES-U.S. yields rise as Syria jitters ease, China data
* Chinese data, easing Syria concerns reduce bond demand
* Heavy orders for mega Verizon deal curb Treasuries demand
* Investors put in solid showing at $31 bln 3-year note sale
* Fed buys $1.39 billion TIPS due 2018-2043
NEW YORK, Sept 10 (Reuters) - U.S. Treasuries yields climbed on Tuesday as upbeat Chinese industrial output and retail sales data eased fears of an economic slowdown, while ebbing concerns about a Western-led attack on Syria also reduced demand for safe-haven U.S. debt. Benchmark yields approached 3 percent following stronger-than-expected industrial output that reinforced other signs that China's economy was stabilizing after slowing for more than two years. This improving trend has emerged just as major development economies brace for potential fallout from an expected trimming of U.S. stimulus, known as QE3.
Concerns about a Western-led attack on Syria also decreased after U.S. President Barack Obama said Monday he saw a possible breakthrough after Russia proposed that its ally Damascus hand over its chemical weapons for destruction, which could avert the planned military strikes. "We seem to be averting an imminent strike against Syria. That's taking away from of the safehaven bids for bonds," said Sharon Stark, chief fixed income strategist at D.A. Davidson in St. Petersburg, Florida. Solid investor demand at a $31 billion three-year note sale, part of the $65 billion coupon-bearing supply this week, briefly kept a lid on yields, but traders quickly turned their attention to the remaining supply in 10-year and 30-year maturities on Wednesday and Thursday amid lingering concerns over rising long-dated yields whenever the Fed halts QE3. The latest three-year note due September 2016 cleared at a yield of 0.913 percent, which was the highest since May 2011. On the open market, benchmark 10-year Treasury notes were last down 11/32 in price to yield 2.957 percent, up 4 basis points from late Monday. The 10-year yield was roughly 5 basis points below the 25-month high set on Friday. The yield on the two-year note was up 2 basis points to 0.467 percent, while the 30-year bond yield was up 4 basis points at 3.888 percent.
VOLATILITY FROM SYRIA Treasuries are likely to remain sensitive to the risk of conflict with Syria, which could add volatility and complicate the sales of public and corporate bond supply slated this week. "We're still a little bit day-to-day and we've got more people trying to work out if the Syrian, Russian and U.S. negotiations can really bear fruit," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. Hedging by dealers and investors preparing for a record corporate bond deal by Verizon Communications, Inc added to the pressure on Treasuries. The company is on track to sell the largest corporate bond deal in history, with orders reaching $85 billion late Tuesday. Pricing is expected on Wednesday, according to IFR, a unit of Thomson Reuters.
The Federal Reserve's policy meeting next week will be the next market focus after investors absorb this week's supply. Ten-year note yields have dropped from two-year highs of 3.01 percent reached Friday. A weaker-than-expected payrolls report led investors to bet the Fed may cut its bond purchases 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 in August. "It's better to start off slowly because the data are still questionable. Still we don't the emergency stimulus measure anymore," said D.A. Davidson's Stark. Meanwhile, the Fed bought $1.39 billion in Treasury Inflation-Protected Securities (TIPS) due from 2018 to 2043 on Tuesday as part of its planned $45 billion in Treasuries purchases for QE3 in September. Economic data later in the week will be closely watched for signs of strength in the economy, with retail sales data due out Friday likely to be the most influential.