U.S. Treasuries prices fell on Monday on profit-taking from last week's safe-haven gains and as traders shrugged off weaker-than-expected data on new U.S. home sales.
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While data showing a 7.0 percent decline in U.S. single-family homes sales in December spurred demand for safe-haven bonds earlier in the day, traders later blamed the weakness on frigid temperatures and turned their focus to the Federal Reserve's policy meeting that starts Tuesday.
"You're seeing more people looking to take profits in front of the expected $10 billion taper announcement on Wednesday," said Jason Rogan, managing director of Treasury trading at Guggenheim Securities in New York.
The Fed, at its two-day policy meeting, will consider whether to further scale back its bond-purchase program, which is aimed at holding down long-term borrowing costs to help the economy.
In December, the Fed reduced its monthly purchases of Treasuries and mortgage-backed securities by $10 billion to $75 billion. Some analysts expect the Fed will cut purchases by another $10 billion this week. The Fed will issue its policy statement at the close of its meeting on Wednesday afternoon.
Investors also took profits ahead of a surge in new supply this week that will likely weigh on bond prices.
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On Wednesday, the Treasury will hold its inaugural auction of two-year floating-rate notes. This is the first new type of U.S. government debt security since the introduction of Treasury Inflation-Protected Securities in 1997.
The debut of $15 billion in the two-year floating-rate note issue joins this week's fixed-rate supply of two-year debt ($32 billion), five-year notes ($35 billion) and seven-year debt ($29 billion).
"Traders are lightening their Treasury holdings in order to more easily digest this week's auctions," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco.
Panic stemming from last week's selloff in emerging market assets also quieted, with some traders taking the view that markets overreacted to the rout, reducing appetite for safe-haven bonds.
"A lot of people thought the reaction in the U.S. was overdone," said Rupert.
Emerging markets have been roiled by worries about U.S. Federal Reserve policy, slowing growth in China and political problems in Turkey, Argentina and Ukraine.
Benchmark 10-year Treasury notes were down in price with a yield of 2.7607 percent, up from an earlier yield of 2.71 percent, which was a near two-month low. Bond yields move inversely to their prices.
The Fed bought $1.31 billion in U.S. government debt that matures May 2038 to February 2043 for its third round of quantitative easing, which had a muted impact on the bond market.
"It's becoming less and less of a support for the market," said Rogan of Guggenheim.
On Wall Street, the Standard & Poor's 500 pared some earlier losses but still closed down 0.49 percent.
(By Sam Forgione)