TREASURIES-US bond prices rise on expectations of Fed action

* September consumer confidence falls more than expected

* Concession for $35 billion 5-yr note auction evaporates

* Housing data fuels price gains in 10-year notes, bonds

* Traders pull back from “shock and awe” QE expectations
(Adds analyst’s quote, info on Medley note, updates prices)

By Emily Flitter

NEW YORK, Sept 28 (BestGrowthStock) – Prices of U.S. Treasury debt
rose on Tuesday as new data showing weaker consumer confidence
added to expectations for more Federal Reserve support, pushing
yields lower and extending Monday’s rally.

Prices rose in spite of preparations for a fresh supply of
five-year notes and as traders recalculated their previously
lofty expectations for further Federal Reserve purchases of
Treasuries.

More turmoil in Europe and a note from a hedge fund adviser
saying that the Fed was preparing a second round of
quantitative easing also contributed to the enthusiasm for
Treasuries.

“It’s a combination of flight to quality and more evidence
that the economy might be in more trouble,” said David Coard,
head of fixed income sales and trading at Williams Capital
Group in New York.

Traders were passing around a note from Medley Global
Advisors saying that “Fed leadership has all but run out of
patience with economic data.” The note predicted an
announcement on new easing measures following the Fed’s Nov.
2-3 meeting. For more, click on [ID:nN28181349]

Market participants also began setting up for an auction of
$35 billion in five-year notes scheduled for 1 p.m. (1700
GMT).

“The market still needs a concession to draw in end-buyer
usage,” John Spinello, Treasury bond strategist at Jefferies &
Co. in New York, said of the five-year note. “It is expensive
on the curve.”

The five-year Treasury note (US5YT=RR: ) last rose 5/32 in
price compared to late Monday and yielding 1.26 percent.

Tuesday’s data tipped a jittery Treasury market toward the
expectation that the Federal Reserve would indeed have to start
buying Treasuries again in a fresh effort to stimulate economic
growth.

The 30-year Treasury bond posted full-point price gains for
the day after consumer confidence in September came in below
analysts expectations and the Standard & Poor’s/Case-Shiller
home price index showed a drop in July, while June’s reading
was revised downward. For more details see [ID:nN28171795] and
[ID:nN28171424]

“The Fed is certainly focused on at least stabilization if
not improvement in this sector,” said Ian Lyngen, senior
government bond strategist at CRT Capital Group in Stamford,
Connecticut, referring to the housing market.

The Fed bought roughly $300 billion worth of Treasuries in
2009 to stimulate economic growth. Economic data readings
improved in early 2010 but showed fresh signs of weakness over
the summer. The Fed’s polciy-setting Federal Open Markets
Committee said in its statement a week ago that it was prepared
to do more to support the economy “if needed.”

A rally that brought the 10-year Treasury note yield to its
lowest close in September on Monday continued on Tuesday, with
the 10-year note (US10YT=RR: ) gaining 11/32 in price, its yield
sinking to to 2.49 percent from 2.53 percent at Monday’s
close.

The Case-Shiller data was the jolt Treasuries needed to
post additional gains on Tuesday. The composite index of 20
metropolitan areas declined 0.1 percent in July from June on a
seasonally adjusted basis, as expected in a Reuters poll. The
dip followed a 0.2 percent June rise, which was revised down
from a 0.3 percent increase. For more, click on
[ID:nNLLSKE6HT]

“The Fed, I guess, by opening the door (to more easing) in
the last meeting, got the market revved up in a one-directional
move,” said Spinello, of Jefferies & Co.

He added that traders were coming to terms with the idea
that the Fed’s second program might not be as aggressive as the
markets had expected.

“We think they’re going to be data dependent and that’s
what they’re really telling us now,” he said. “It’s just taking
the certainty out of a full-fledged shock and awe approach.”

The 30-year bond (US30YT=RR: ) was up 1-6/32 in price and
yielding 3.66 percent, down from from 3.72 percent on Monday.
Two-year Treasury yields (US2YT=RR: ) were 0.44 percent, up from
0.43 percent the previous day.
(Editing by Leslie Adler)

TREASURIES-US bond prices rise on expectations of Fed action