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BOND REPORT: Treasurys Prices Rise After Housing Data

01/22/2013 | 05:14pm US/Eastern
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By Wallace Witkowski and Polya Lesova, MarketWatch

SAN FRANCISCO (MarketWatch) -- Treasury prices rose Tuesday, reversing earlier losses, following data that showed sales of existing homes declining in December.

Yields on benchmark 10-year notes (10_YEAR) fell less than 1 basis point to 1.85%, after being up more than 3 basis points at 1.88% earlier in the session.

Yields move inversely to prices. A basis point is one one-hundredth of a percentage point.

Treasury prices started bouncing back after National Association of Realtors data showed a 1% decline in existing-home sales for the final month of 2012.

Earlier, prices were lower after the Bank of Japan said it would adopt a target of 2% inflation and kick off a program of open-ended asset purchases.

While Treasurys were initially weaker on the Bank of Japan's aggressive stance, the housing report turned that momentum around, indicating a tightening housing inventory, said Anthony Valeri, fixed-income strategist at LPL Financial. "They might rally further on that," said Valeri.

Yields on 30-year bonds (30_YEAR) fell less than 1 basis point to 3.03%, after being up as many as 4 basis points earlier in the session.

Adding momentum to the home-sales data was the Federal Reserve's purchase of $1.39 billion in Treasury Inflation Protected Securities, or TIPS, particularly the $1.24 billion in 30-year TIPS purchases, according to Michael Pond, head of global inflation-linked research at Barclays.

Markets were also disappointed in the BOJ plan to wait until 2014 to start asset purchases rather than this year, Pond said.

Criticizing quantitative-easing efforts closer to home, Pimco's Bill Gross said on Twitter that zero-coupon bonds are "future road kill" because of the Fed's current bond buyback rate.

Yields on 5-year notes (5_YEAR) were down less than 1 basis point at 0.76%. Yields on 7-year notes (7_YEAR) were down 1 basis point to 1.24%.

Earlier, yields had gotten a boost after the ZEW indicator, a gauge of economic sentiment for Germany, increased by a surprising 24.6 points in January to stand at 31.5 points. The rise was much bigger than economists had expected.

The positive German data reduced demand for safe-haven assets such as Treasurys.

On Wall Street, U.S. stocks traded higher following a long holiday weekend, as investors digested a raft of quarterly earnings reports. The Dow Jones Industrial Average (DJI) gained 0.5% and the S&P 500 Index (SPX) rose 0.4%, while the Nasdaq Composite Index (RIXF) closed up 0.3%.

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