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TREASURIES-Prices rise after weak housing data, before Fed minutes

Karen Brettell
Tuesday, 18 Feb 2014 | 2:49 PM ET

* Prices rise after housing data disappoints

* Forward guidance in focus for Fed meeting minutes

* Fed to buy $1 bln-$1.25 bln bonds due 2036-2044

NEW YORK, Feb 18 (Reuters) - U.S. Treasuries prices gained on Tuesday after U.S. homebuilder confidence posted its largest one-month drop ever in February, heightening recent concerns over the slowing economy, and after the market last week absorbed $70 billion in new supply. The National Association of Home Builders said on Tuesday its Housing Market Index plunged by 10 points to 46 in February , with a majority of builders seeing market conditions as poor. The data raised doubts that recent weakness may extend beyond bad weather, after many analysts and some Fed speakers said that unseasonably cold weather in the U.S. is distorting data and that economic momentum is likely to accelerate again in the coming months. The spate of weak data in recent weeks is expected to limit the importance of the Federal Reserve's minutes from its January policy meeting due to be released on Wednesday. Fed members are expected to show they are committed to continuing the reduction in the central bank's bond purchase program. "The backdrop has changed a lot since that meeting, we've got another softish payroll report and we've gotten some other weakish data. I think people are going to have to take what the Fed said and then adjust to what you assume the Fed would change its stance to, given the data," said Michael Cloherty, head of U.S. rates strategy at RBC Capital Markets, in New York. Employers added 113,000 jobs in January, well below economists expectations of 185,000 jobs, while December's jobs gains also came in well below projections. Benchmark 10-year notes were last up 12/32 in price to yield 2.708 percent, down from 2.745 percent late on Friday. Thirty-year bonds rose 12/32 in price to yield 3.676 percent, down from 3.70 percent. Bonds also rallied as bond supply eased, after the Treasury last week sold new three-, 10- and 30-year debt as part of its regularly scheduled bond auctions. Investors will also focus on discussion of forward guidance in the Fed's meeting minutes, with unemployment dropping at a faster rate than expected to a five-year low of 6.6 percent in January. The Fed previously said that it would not raise interest rates until joblessness fell to at least 6.5 percent, a pledge that policymakers thought would hold until at least mid-2015. "They seem to be downplaying the 6.5 percent unemployment threshold and profess to have taken more qualitative threshold of employment. Any discussion about how they may retool their forward guidance will be most interesting, to see whether most or some agree these changes will be made," said William O'Donnell, an interest rate strategist at RBS Securities in Stamford, Connecticut. The Fed bought $4.28 billion of Treasuries due in 2018 and 2019 on Tuesday as part of its ongoing purchase program. It will buy between $1 billion and $1.25 billion in bonds due 2036 to 2044 on Wednesday. Investors will also watch to see if producer price pressures are increasing with the Producer Price Index (PPI) release early on Wednesday.