US Treasury debt prices tumble

US Treasury debt prices fell sharply on Tuesday as worries about looming interest rate hikes added to technical pressures, pushing benchmark yields to six-month highs.
A spotty auction of five-year inflation-protected debt first triggered the selling, which then took on a life of its own as bears became encouraged by the early price dip. Benchmark 10-year notes slumped 20/32 to yield 4.536 percent, up from 4.45 percent on Monday and their highest since April.
Analysts said the sell-off represented the resumption of a negative trend in Treasuries that was a natural reaction to economic data showing strong growth and budding inflation.
"We've seen an economy that shows inflationary pressure and has been very resilient through hurricane season," said Joseph Di Censo, fixed-income strategist at Lehman Brothers.
He added that the market was also nervous ahead of Federal Reserve Chairman Alan Greenspan's retirement, which was brought into focus this week with the appointment of Ben Bernanke as his successor.
"Investors usually test new Fed chairmen, but ironically, they seem to be testing Bernanke even before he takes office," Di Censo said.
The dumping of Treasuries was equally merciless in shorter maturities, with two-year notes diving 5/32 for a yield of 4.34 percent, a 4-1/2-year high. The 30-year bond retreated 1-4/32 to yield 4.74 percent from 4.67 percent.
The market ignored a drop in consumer confidence for October and focused instead on next week's Fed meeting, which is likely to bring another instalment in the central bank's monetary tightening campaign.
Bulls got no help from a $7 billion reopened TIPS auction. They were sold at a high yield of 1.740 percent and drew bids 1.65 times per dollar of debt on offer, well below the 1.80 seen in the original sale.
Indirect bidders, which include customers of primary dealers and foreign central banks, took home just $1.62 billion, or 23.1 percent of the deal, well below the 51.8 percent at the original auction and 54.4 percent at the April reopening.
Regular five-year debt suffered more losses after the auction and was down 13/32 for a yield of 4.40 percent from 4.32 percent on Monday.