TREASURIES-Prices rise as economic data mixed, month end nears

Luciana Lopez
Tuesday, 26 Nov 2013 | 10:38 AM ET

* Treasury to auction $35 billion in five-year notes

* Thin liquidity in holiday week exacerbates market moves

* Consumer confidence unexpectedly slips in November

NEW YORK, Nov 26 (Reuters) - Prices for U.S. Treasuries rose on Tuesday as mixed economic data suggested the Federal Reserve could continue its bond-buying program into the new year, though analysts cautioned on thin liquidity because of the holiday-shortened week. Consumer confidence unexpectedly slipped in November, with the Conference Board consumer confidence index at its lowest since April. "Consumer confidence came in significantly weaker than expected. The market was looking for an increase, we got a decrease," said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut. "We did see a slight firming in the jobs component," he said. "Mixed, but still consistent with this grinding bid we've seen in the Treasury market this week." In addition, while one closely-watched survey on Tuesday showed U.S. single-family home prices posted their strongest annualized gain in 7-1/2 years in September, another showed gains in home prices eased. "The net read from these (housing) data points is that the back up in mortgage rates has stalled the housing market recovery," said Steven Ricchiuto, chief economist at Mizuho Securities USA in New York. A subdued recovery, in turn, could encourage the Federal Reserve to maintain its bond-buying program, which has been a major support for Treasuries this year. Trading is expected to be thin this week, as well, with the bond market closed on Thursday for the Thanksgiving holiday and closing early on Friday. The benchmark 10-year Treasury note rose 9/32 in price to yield 2.710 percent on Tuesday, compared to 2.7337 percent late on Monday. The 30-year bond rose 18/32 in price to yield 3.804 percent on Tuesday, compared to 3.8221 percent late on Monday. Investors are scouring data releases to get a sense of the health of the world's biggest economy and how much more - or less - support Fed policymakers might be inclined to give. With Fed officials now hinting for months that they are looking to exit an $85 billion per month asset-buying program, markets around the world have whipsawed back and forth as investors see greater or lesser odds of such a tapering in purchases happening sooner or later. But perhaps the most important data for the Fed will not be released until next Friday, Dec. 6: nonfarm payrolls. The Fed wants to see the unemployment rate closer to 6.5 percent from its current 7.3 percent. Economists in a Reuters survey see that rate edging down to 7.2 percent in November. The Fed has emphasized that any pullback in purchases will be data-dependent, with policymakers desirous of seeing a stronger, self-sustaining recovery in the job market first. The upcoming change of leadership at the Fed also adds to uncertainty: Janet Yellen, the current number two at the bank, is expected to take over from Chairman Ben Bernanke early next year. A number of analysts say the central bank is likely to keep rates lower for longer than previously expected next year to help prop up the economy. The Treasury will also sell $35 billion in five-year notes on Tuesday, after having sold $32 billion in two-year notes on Monday. The Treasury will also sell $29 billion in seven-year notes on Wednesday. "The 7-year auction tomorrow and possibly some early month-end buying ahead of the Thanksgiving holiday and an early close on Friday should lead to more flattening pressure in coming days, but we look to use this to set up steepeners into December as the trend steepening move continues into long-end supply," said Richard Gilhooly, an interest rate strategist at TD Securities in New York. Portfolios managed against benchmark indexes often buy longer-dated Treasuries around month-end.