Bonds fall on US data, waning geopolitical tensions

US 10-YR
US 30-YR

Treasurys debt prices fell on Monday after three days of gains, as risk appetite returned following upbeat U.S. housing data and easing tensions in the Middle East and Ukraine, two global sore spots.

Losses in the UK government bond market also weighed on Treasurys, analysts said, with the two sectors displaying a strong correlation. Reuters data showed U.S. and U.K. 10-year yields have a 94 percent correlation on a 25-day rolling basis.

Britain's 10-year government bond yields, which move inversely to prices, rose about 94 basis points on Monday to 2.423 percent. Gains came after Bank of England Governor Mark Carney said in a newspaper interview over the weekend that UK interest rates may have to rise even before real wages pick up.

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That was viewed as backtracking from Carney's comments last week that suggested the opposite and prompted markets to push back bets on an initial rate hike.

A strong U.S. housing report, however, pushed U.S. 10-year note and 30-year bond prices to session lows.

The data showed that homebuilder sentiment rose in August to its highest since January, according to the National Association of Home Builders. The NAHB/Wells Fargo Housing Market index rose to 55 in August from 53 in July, the group said in a statement. It was the third straight monthly gain, and topped the mean estimate of analysts polled by Reuters for a reading of 53.

"As the only data point for the day, it's notable at least insofar as it's directionally consistent with the downward pressure in Treasuries," said Ian Lyngen, senior government bond analyst at CRT Capital in Stamford, Connecticut.

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U.S. 10-year notes fell 13/32 in price to yield 2.39 percent from 2.34 percent late on Friday. U.S. 30-year bond prices also slid, dropping 1 3/32 to yield 3.19 percent from 3.129 percent the previous session.

U.S. Treasurys were also pressured by easing global tensions, analysts said. Last Friday, U.S. bonds got safe-haven bids after the government in Kiev said its artillery had partially destroyed a Russian armored column, while Russia denied its forces had crossed into Ukraine.

Investors on Monday breathed a sigh of relief that things did not escalate further in that region, even as tensions in Gaza have eased a little bit amid talks in Egypt about ending the conflict in the Middle East. "The geopolitical situation didn't get worse over the weekend and that weighed on Treasuries," said David Keeble, global head of interest rates strategy at Credit Agricole in New York.

—By Reuters