NEW YORK: US Treasury debt prices slipped on Tuesday for a second day as housing data pointed to an improving housing market and as investors took more faith that lawmakers in Washington will reach a deal to avert a budget crisis that could send the economy into recession.
US housing starts rose to their highest rate in more than four years in October, suggesting that the housing market recovery was gaining steam, even though permits for future construction fell, the Commerce Department said on Tuesday.
Bond investors are also gaining more confidence that Congress will reach a deal to avert the so-called "fiscal cliff" of spending cuts and tax hikes due to come into effect in early 2013.
"It's a continuation of yesterday's trade. There is some reasonable optimism out of Washington that the foundation for some sort of budget is going to come into fruition here," said James Newman, head of Treasuries and Agency trading at Keefe, Bruyette and Woods in New York.
"In general things feel a little bit better, which means there is a little bit of selling in the bond market," he said.
In the past two weeks Treasuries yields had fallen to two-month lows as investors fled stocks on concerns that US lawmakers would fail to reach a deal.
Benchmark 10-year Treasuries were last down 7/32 in price to yield 1.63 percent, up from 1.61 percent on Monday. The yields have fallen from 1.75 percent on Nov. 6.
Thirty-year bonds fell 13/32 price to yield 2.78 percent, up from 2.76 percent late on Monday.
Investors are also focused on a speech by Federal Reserve Chairman Ben Bernanke in New York, which is scheduled for 1215 EST (1715 GMT).
Market participants will be looking for further signs about whether the US central bank will link policy actions to so-called thresholds -- economic data points, like specific unemployment and inflation rates -- that would signal when the central bank is likely to begin raising interest rates from near zero.
Many of the Fed's officials want to adopt them and influential Fed Vice Chair Janet Yellen voiced her strong support last week, making the project sound all but inevitable.
"I think Bernanke will try to build upon the platform she delivered last week in terms of putting some more meat on the bones in terms of the timeline of when the FOMC might move to targeting a specified level of employment, rather than a vague moving end date for when short rates will stay very low," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
Trading volumes are also expected to decline before the US Thanksgiving holiday on Thursday.
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