US Treasury prices fall

US Treasury debt prices fell on Monday after a surprise increase in pending home sales and news that a troubled bond insurer raised new capital removed some of the recent flight-to-safety bid.
MBIA Inc, the world's largest bond insurer, said it will receive $1 billion in new capital from buyout firm Warburg Pincus, which alleviated some concerns about MBIA's liquidity. Data also showed pending sales of US existing homes rose modestly in October from the month previous. Analysts had forecast pending home sales to decline. "Signs of a bounce in the housing market kept the pressure on bonds," said Carley Garner, senior analyst at Alaron Research in Las Vegas.
Treasury trade volume was below average as some investors stepped to the sidelines ahead of the Federal Reserve's policy meeting on Tuesday, at which the central bank is expected to cut benchmark interest rates.
"It was another day of Treasury selling ahead of the Fed meeting," said Garner. "Bond traders seem to believe that a lower federal funds target rate has already been priced in." Garner said last month's bond rally was based on an outlook for "a devastated economy, an aggressive Fed, and a continuation of the stock market plunge."
"Now that it appears that the stock market may pull through, the Fed is old news and the economy is somewhat stable, the fear premium in the market is quickly dissipating" to the detriment of bond prices, she said.
Kim Rupert, managing director of global fixed-income analysis at Action Economics LLC in San Francisco, said the cash infusion into MBIA and "a couple of other" positive developments on the credit front suggested "that the worst-case scenario for the credit mess" might be fading a little bit. Benchmark 10-year Treasury notes were trading 13/32 lower in price for a yield of 4.16 percent from 4.11 percent late on Friday.
"The pending home sales caught the market a little by surprise; it was a little more positive news on the economy than the market had been expecting so Treasuries have sold off," said Matthew Moore, economic strategist at Banc of America Securities.
Bond traders largely shrugged off early news that Swiss bank UBS would write down a further $10 billion on subprime exposure - one of the largest write-downs by any bank since the beginning of the credit crisis in August.
Two-year notes were trading 4/32 lower in price for a yield of 3.18 percent from 3.11 percent late on Friday, while five-year notes were 9/32 lower in price for a yield of 3.56 percent from 3.49 percent. Thirty-year bonds were 25/32 lower for a yield of 4.62 percent from 4.57 percent.