TREASURIES-U.S. bond prices fall on housing, retail sales data

Richard Leong
Tuesday, 29 Oct 2013 | 10:27 AM ET

* U.S. Treasury to sell $35 billion 5-year notes

* U.S. ex-auto retail sales grew modestly in August

* U.S. home prices posted best yearly gain in over 7 years

* Fed to begin two-day meeting, analysts see no surprises

NEW YORK, Oct 29 (Reuters) - U.S. Treasuries prices fell on Tuesday as mildly encouraging data on housing and retail sales reduced safe-haven bids for bonds, although yields remained close to three-month lows. The losses on light trading volume suggested traders were reluctant to make big bets when the Federal Reserve will begin its two-day policy meeting and the Treasury Department sought to sell $96 billion in coupon-bearing debt this week. Benchmark yields have been stuck in narrow 7 basis point range after they fell to a three-month low of 2.471 percent last Wednesday in the wake of a disappointing September jobs report. "The market is directionless. There is no urgency to push yields higher or lower," said Lou Brien, market strategist at DRW Trading in Chicago. Benchmark 10-year Treasury notes were down 2/32 in price with a yield of 2.522 percent, up 1 basis point from late on Monday. The 30-year bond was 12/32 lower, yielding 3.625 percent, up over 2 basis points on the day. Longer-dated yields touched their highest levels in almost a week following a S&P/Case-Shiller report that showed home prices in 20 U.S. metropolitan areas posted their stronger yearly gain in over seven years in August. The report bucked a recent spate of weak housing figures in the wake of a surge in mortgage rates this summer. "Strengthening in home prices is a plus for growth through various channels, including increased consumer spending because of wealth and confidence effects, increased incentive to buy before prices go up some more, and increased incentive to lend because of less chance of mortgages turning delinquent," Jim O'Sullivan, chief U.S. economist at High Frequency Economics wrote in a research note. Data on the consumer sector, which accounts for two-thirds of the U.S. economy, cast a more uncertain outlook. The Commerce Department said a hefty drop in car demand led to a surprise 0.1 percent dip in retail sales in September. Excluding the weakness in auto sales, retail sales grew 0.4 percent, matching analyst expectations. Future spending might slow as consumer confidence sagged in October after the government shutdown and debt-ceiling fight in Washington, just weeks ahead of the critical year-end holiday shopping season. The Conference Board said its index on U.S. consumer confidence fell to a six-months low in October. The selling pressure on longer-dated bonds was mitigated by a scheduled purchase by the Fed, part of its $85 billion monthly bond-purchase stimulus program known as QE3. The Fed was scheduled to buy $1.25 billion to $1.75 billion due in February 2036 to August 2043 at 11 a.m. (1500 GMT). Fed policy-makers have been widely expected to signal after their meeting on Wednesday they would cling to its current pace of bond purchases in a bid to support the economy which seemed weakened by the recent 16-day partial government shutdown. Meanwhile, the Treasury's five-year debt sale at 1 p.m. (1500 GMT) is expected to go well following a solid $32 billion two-year note auction on Monday. The Treasury will complete this week's coupon debt offering on Wednesday with a $29 billion sale of new seven-year notes. In "when-issued" activity, traders expected the upcoming five-year note issue to sell at a yield of 1.307 percent. This compared with a yield of 1.436 percent at the five-year auction in September.