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TREASURIES-U.S. bond prices slip on upbeat retail sales data

Ellen Freilich
Thursday, 12 Dec 2013 | 4:08 PM ET

* Economists push up Q4 GDP forecasts on retail sales data

* Jump in new jobless claims dismissed as anomaly

* Direct bid light in 30-year Treasury bond auction

* Fed bought $3.73 billon Treasuries due 2019-2020

* U.S. to sell $96 bln Treasuries, $16 bln TIPS next week

NEW YORK, Dec 12 (Reuters) - U.S. Treasuries prices slipped on Thursday after stronger-than-expected retail sales data, which indicated fourth-quarter domestic growth might be less weak than some had thought, prompted traders to trim their bond holdings. The retail sales report reinforced selling that was already in place as traders made room for $13 billion worth of 30-year bonds, the last part of this week's supply of $64 billion in coupon-bearing government debt. Demand for the re-opened 30-year bond issue was average. The auction "tailed" the 1 p.m. (1800 GMT) bidding deadline level by 1 basis point for a yield of 3.90 percent, said Brett Rose, analyst at Citigroup Global Markets, in a research note. U.S. retail sales rose 0.7 percent in November.

"The November retail sales report was strong, prompting us to increase our Q4 GDP tracking estimate by four-tenths to 1.9 percent," economists at Goldman Sachs said. The data also fed discussion over whether the Federal Reserve might decide to trim its $85 billion of monthly purchases of Treasuries and mortgage-backed securities at its policy meeting next Tuesday and 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. Thirty-two economists expect the Fed to taper its third round of quantitative easing in March, while 22 said it would scale back its bond-buying program in January, according to a Reuters poll released on Wednesday. Only 12 economists expected a tapering announcement next week. The upbeat retail sales figures were countered by a jump in weekly jobless claims that raised some doubt as to whether the recent pickup in job growth is sustainable.

Some economists tied the increase -- the biggest weekly rise in filings for unemployment benefits in 13 months -- to seasonal distortions from the Thanksgiving holiday in late November. "You have to take the two weeks together," said Jacob Oubina, senior economist with RBC Securities in New York. ING U.S. Investment Management economist Tanweer Akram said the market is also dealing with "quite a bit of uncertainty going forward" regarding next week's Fed policy meeting. "It's going to be a fairly close call about whether the Fed is going to start engaging in tapering," he said. "It's not a done deal; it's a subject for debate." On the open market, benchmark 10-year Treasury notes last traded 8/32 lower, their yields rising to 2.89 percent, at the high end of their recent range. The 30-year bond slipped 7/32, its yield rising to 3.90 percent. The increased likelihood of Fed tapering by early 2014, if the data continues 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 inflation and shores up the U.S. dollar, analysts said. 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 $32 billion in two-year notes, $35 billion in five-year debt, $29 billion in seven-year notes and $16 billion in five-year Treasury Inflation-Protected Securities.

The Fed on Thursday bought $3.73 billion in Treasuries due in 2019 and 2020, as a part of its planned $45 billion of purchases of government debt in December.