Brighter data causes small selloff in Treasuries

NEW YORK: Prices of US Treasuries fell on Wednesday after the Commerce Department reported a larger-than-expected rise in durable goods orders in July.

New orders for long-lasting US manufactured goods rose on strong demand for aircraft and motor vehicles.

The data boosted stock futures and dragged Treasuries prices slightly lower, erasing some small early morning gains, but the selloff was muted.

"The more positive data is unlikely to be sustained," said Gennadiy Goldberg, a fixed income analyst at 4Cast Inc in New York.

"This is part of the reason there isn't much of a reaction in Treasuries on durables. If we see this for a few months, then people will start rethinking their picture of things."

Goldberg said market participants were focusing on Friday's highly anticipated speech by Federal Reserve Chairman Ben Bernanke, though there was growing doubt he would offer hints about more economic stimulus.

Speculation has been widespread in financial markets that Bernanke will use his speech at a central banker conference in Jackson Hole, Wyoming, to signal a new monetary offensive to support a faltering US economy.

Some have predicted the Fed chairman will discuss ways the central bank could tweak the Fed's balance sheet as a means to put further pressure on medium and long-term interest rates and anchor them at low levels.

But confidence is waning that Bernanke would offer a substantial source of hope for ragged markets.

"There really isn't much the Fed is going to do on Friday, and there's a lot of room for disappointment," Goldberg said.

The selling in Treasuries improved the prospects for Wednesday's $35 billion five-year note auction. The Treasury Department will hold the second of the week's three scheduled auctions at 1 p.m. (1700 GMT).

A drop in the price of five-year notes is needed, analysts say, for the auction to go well. Nomura Securities, in a note to clients, said the five-year yield, which is currently 0.97 percent, would be more attractive if it could be pushed up to 1 percent or above.

"The five-year auction is unlikely to be as uneventful as the twos on Tuesday, especially as Bernanke's Jackson Hole speech on Friday will be occupying market attention in the background (uncertainty premium)," analysts for Nomura wrote.

The benchmark 10-year Treasury note fell 5/32 in price and its yield rose to 2.17 percent from 2.16 percent at Tuesday's close.

The 30-year bond was up 5/32 and yielding 3.48 percent, down from 3.49 percent late on Tuesday.

Copyright Reuters, 2011