Treasuries knocked lower by sturdy housing sector
(Adds TIPS sale results, analyst comment, updates prices)
NEW YORK, April 26 (Reuters) - U.S. Treasury debt prices succumbed to a wave of selling on Tuesday after record home sales largely obscured a drop in consumer sentiment.
Even as consumers complained to The Conference Board in April that gasoline prices were threatening their confidence in the economy, March data showed Americans snapping up new property in earnest -- new homes sales jumped 12.2 percent.
Bond investors have learned to pay more attention to what consumers do than what they say, so the strength in housing was sufficient to send the benchmark 10-year note <US10YT=RR> 10/32 lower for a yield of 4.30 percent.
The surge in home purchases countered ideas that the economy might be headed for slower growth and suggested the Federal Reserve would keep raising interest rates at a measured pace.
"The Fed will continue its process of gradual tightening," said Rick Egelton, deputy chief economist at BMO Financial.
The market was focused on absorbing fresh supply this week, but a well-received auction of $9 billion in reopened five-year inflation-protected securities on Tuesday did little to curb early losses.
The new notes were sold at a high yield of 1.2 percent and drew bids for 1.88 times the amount of debt on offer, up from the 1.80 garnered when the notes were first sold.
Indirect bidders, which include customers of primary dealers and foreign central banks, took home a solid 54 percent of the issue, quelling market fears of waning offshore demand for U.S. government debt.
More important for dealers is Wednesday's sales of $24 billion in two-year notes.
Treasuries started the session on a positive note, encouraged by sluggish economic news in Europe that had bolstered debt markets overseas.
But the outsize increase in U.S. home sales poured cold water on the nascent rally. New home sales rose to an annualized 1.431 million rate, way above forecasts of a 1.195 million pace.
The Conference Board's index of consumer confidence dropped to a five-month low of 97.7 in April from 102.4 in March. Still, the fall was in line with forecasts of a drop to 98.0 and some had been betting on an even weaker number.
Moreover, more people said they intended to buy a major appliance, supporting analysts' suspicions that sentiment surveys have scant correlation to consumption.
Analysts assumed such a robust housing sector would support consumption as homeowners buy furniture and other items to fill their new houses.
"All in all this is very much second-tier data, but the overriding impression is that any slowdown is at worst modest," said Alan Ruskin, research director at 4CAST.
The two-year note <US2YT=RR> lost 2/32, lifting its yield to 3.68 percent from 3.64 percent. The five-year note <US5YT=RR> shed 5/32, taking yields to 3.98 percent from 3.94 percent. The 30-year Treasury bond <US30YT=RR> dropped 18/32, taking its yield to 4.59 percent from 4.56 percent.
Despite Tuesday's selling, some analysts doubted 10-year yields would break above their recent 4.30 percent ceiling as so much of the market was already betting on a further downturn in bonds.
The latest JPMorgan survey of clients suggested investors were getting even more bearish. It found those with long positions edged up a single percentage point to 11 percent last week while short positions expanded to 53 percent from 46 percent.
With so many investors already short of bonds, there could be less scope for fresh selling and it leaves them vulnerable to a reversal, perhaps sparked by soft economic data.
