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Bonds Flat as Jobs Data Offsets Housing Fears

U.S. Treasury debt prices were flat to slightly lower Thursday, as data suggesting a solid job market offset hopes of more interest rate cuts by the Federal Reserve amid worries about the housing slump.

Expectations that the Fed would cut rates in October were scaled back after a surprise 15,000 decline in the number of workers filing for new jobless claims last week, suggesting labor conditions have remained tight despite further deterioration in the housing sector.

Prior to the jobless claims data and a final reading on second-quarter gross domestic product (GDP), which was in line with forecasts, rumors circulated in the market that August new home sales data could show a drop of more than double what Wall Street has been expecting.

"There is particular fear about housing weakness. There's specific talk about weaker-than-expected new home sales," said Mark Chandler, fixed income strategist at RBC Capital Markets in Toronto.

The median forecast for new home sales among economists polled by Reuters was an annualized rate of 830,000 units last month, down 4.6 percent from July.

The government will release its August report on sales of newly built homes at 10 a.m. (1400 GMT).
The price on benchmark 10-year Treasury notes were down 2/32 after rising as much as 6/32 in early trading. Ten-year yield was 4.63 percent, up slightly from late Wednesday. Bond prices and yields move inversely.

On the supply front, the Treasury Department will auction $13 billion in new five-year notes, a day after robust demand for $18 billion in two-year debt.

"While hopes for further Fed rate cuts might make the issue somewhat attractive at these levels, the weaker dollar and threat of rising inflation may limit demand," said Action Economics in a research note Thursday.

Meanwhile, four Fed officials including Chairman Ben Bernanke were scheduled to make public appearances on Thursday. The only one who is slated to deliver a speech other than welcome remarks is Fed Governor Frederic Mishkin.

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