US Treasury prices drop

US Treasuries tumbled on Tuesday as a stock market rally and unexpected strength in housing data led investors to trim their holdings of safe-haven government bonds. A report showing pending home sales rose unexpectedly in September, providing a rare bit of good news about the beleaguered housing sector.
The news added momentum to a wave of bond market selling that started early in the session. But it was stocks that carried the day as higher-risk investments benefited from surprisingly robust profits reported by Wal-Mart Stores Inc, sending a strong sell signal to bonds.
The move gained support after Goldman Sachs Group Inc's chief executive said he expected no significant asset write-downs at the investment bank, allaying some recent concerns over financial sector health after this year's mortgage meltdown.
"We're in overdrive on stocks," said Thomas di Galoma, head of US Treasury trading at Jefferies & Co in New York. "We're just watching stocks and as stocks continue to accelerate higher bonds are suffering." The benchmark 10-year note fell 15/32 in price on the day, pushing yields up to 4.27 percent from 4.21 percent late on Friday. The Treasury market was closed on Monday for the Veterans Day holiday.
Ten-year yields briefly touched two-year lows overnight before traders took cues from the higher stock futures to sell bonds, but were heading for their biggest increase this month.
The two-year note slid 9/32, pushing the yield up to 3.55 percent. Two-year yields were on track for their biggest daily rise since late-August and flirted with their biggest jump of the year. Though pending home sales rose versus the previous month, they were still far lower than a year ago and dealers said few in the market expected a quick rebound in the sector.
Given this, they put much heavier blame for losses in Treasuries on stocks. "The rebound in the stock market after four days of pretty substantial losses is taking a little bit of the bid out of Treasuries," said Kim Rupert, managing director, global fixed income analysis, Action Economics LLC in San Francisco.
"We'd already been lower through the day on equities. The pickup in pending home sales was only slight and I don't think that many in the market believe we're out of the woods in terms of housing."
The bond market selloff also came as traders sought to reposition ahead of a busy spate of data releases in the coming days, including inflation figures on Wednesday and Thursday.