U.S. Treasury debt prices eased Monday after a surprise increase in pending home sales and news that a troubled bond insurer raised new capital removed some of the recent flight-to-safety bid.
MBIA, the world's largest bond insurer, said it will receive $1 billion in new capital from buyout firm Warburg Pincus, which alleviated some concerns about MBIA's liquidity.
Data also showed pending sales of U.S. existing homes rose modestly in October from the month previous. Analysts had forecast pending home sales to decline.
Treasury trade volume was below average as some investors stepped to the sidelines ahead of the Federal Reserve's policy meeting Tuesday, at which the central bank is expected to cut interest rates.
Analysts are debating, however, whether the Fed will cut the recommended overnight lending rate between banks by 25 basis points or 50 basis points from the current level of 4.50 percent. Relatively robust jobs data Friday had some scaling back expectations for the size of the cut.
"With MBIA and a couple of other things out there, it may suggest that the worst-case scenario for the credit mess is fading a little bit," said Kim Rupert, managing director of global fixed-income analysis at Action Economics in San Francisco. "It is taking some of the safe-haven bid out of Treasurys."
Benchmark 10-year Treasury notes were trading 11/32 lower in price for a yield of 4.15 percent from 4.11 percent late Friday.
"The pending home sales caught the market a little by surprise, it was a little more positive news on the economy than the market had been expecting so Treasuries have sold off," said Matthew Moore, economic strategist at Banc of America Securities.
Bond traders largely shrugged off early news that Swiss bank UBS would write down a further $10 billion on subprime exposure -- one of the largest write-downs by any bank since the beginning of the credit crisis in August.
Despite the write-down, UBS stock was buoyed by an emergency capital injection from Singapore and the Middle East, helping to push the overall stock market higher and further undermining bond prices.
Also, Morgan Stanley said the U.S. is likely headed into a recession with ongoing tightening in credit markets putting the bite on business spending.
"Apparently all of the bad news out there is not bad enough (to maintain bond's safe-haven bid)," said Beth Malloy, bond market analyst at Briefing.com in Chicago.
Two-year notes were trading 3/32 lower in price for a yield of 3.16 percent from 3.11 percent late Friday, while five-year notes were 6/32 lower in price for a yield of 3.54 percent from 3.49 percent.
Thirty-year bonds were 24/32 lower for a yield of 4.62 percent from 4.57 percent.