TREASURIES-U.S. bond prices fall on data before 30-year supply

Richard Leong
Thursday, 12 Dec 2013 | 10:36 AM ET

* U.S. to sell $13 bln 30-year bonds, last of week's supply

* Thirty-year supply sets to sell at highest yield since 2011

* U.S. jobless claims jump offsets upbeat retail sales data

* Fed to buy $3-$4 billon Treasuries due 2019-2020

NEW YORK, Dec 12 (Reuters) - U.S. Treasuries prices declined on Thursday as traders trimmed their bond holdings in reaction to stronger-than-expected retail sales data that signaled fourth-quarter domestic growth might not be as weak as some of them had thought. The news on retail sales compounded earlier selling tied to investors making room for a supply of $13 billion worth of 30-year bonds, the last leg of this week's $64 billion in coupon-bearing government debt. The stronger-than-expected 0.7 percent rise in consumer spending in stores and gas stations last month also stoked speculation whether the Federal Reserve might decide whether it will trim its $85 billion monthly purchases of Treasuries and mortgage-backed securities at its policy meeting next Tuesday and Wednesday. Thirty-two economists expect the Fed to taper its third round of quantitative easing or QE3 in March, while 22 said it would scale back its bond-buying program in January. Only 12 economists expected a tapering announcement next week, according to a Reuters poll released on Wednesday. "It puts in question the belief about the tapering early next year. It also raises the possibility a rate hike might happen sooner rather than later," said Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities in New York. However, the relatively upbeat retail sales figures were countered by a jump in weekly jobless claims that raised some doubt whether the recent pickup in job growth is sustainable.

Some economists downplayed the increase, the biggest weekly rise in filings for unemployment benefits in 13 months due to seasonal distortions from the Thanksgiving holiday in late November. "It was heavily distorted by the holiday. You had a low-ball number last week and a high one this week. You have to take the two weeks together," said Jacob Oubina, senior economist with RBC Securities in New York.

On the open market, benchmark 10-year Treasuries notes last traded 4/32 higher with a yield of 2.859 percent, up 1.5 basis points from late on Wednesday. The 10-year yield was about 7 basis points below a three-month high set last Friday following a stronger-than-expected November payrolls report. The 30-year bond fared better than short-and-medium term maturities even in the face of the pending supply at 1 p.m. (1800 GMT). The increased likelihood of a Fed tapering by early 2014, if the data continue support the view of an improving economy, makes the 30-year bond more appealing than shorter-dated issues as less monetary stimulus reduces the risk of a surge in inflation and shore up the U.S. dollar, analysts said. The 30-year bond last traded 8/32 lower, yielding 3.894 percent, up 1.5 basis points from Wednesday's close. In "when-issued" trading, traders expected the $13 billion addition to the 30-year issue sold in November would fetch a yield of 3.900 percent. This would be the highest yield at a 30-year auction since July 2011. In November, the 30-year sale cleared at a yield of 3.810 percent. The 30-year bond auction followed a poor $21 billion 10-year note sale on Wednesday and a solid $30 billion three-year note auction on Tuesday. The supply wave will continue next week when the U.S. Treasury will sell two-year, five-year and seven-year notes.