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TREASURIES-Prices fall as stock strength reduces demand for bonds
December 20, 2016 / 7:50 PM / 9 months ago

TREASURIES-Prices fall as stock strength reduces demand for bonds

(Adds quotes, updates prices)
    * Rate outlook is driving investors
    * Personal income, GDP data due on Thursday in focus

    By Karen Brettell
    NEW YORK, Dec 20 (Reuters) - U.S. Treasury prices fell on
Tuesday as stocks gained, reducing demand for safe-haven assets,
and with no new economic data to give further indications of the
strength of the U.S. economy.
    Both the Dow and the Nasdaq hit record highs on Tuesday, and
the blue-chip index was just 13 points shy of the 20,000 mark, a
level it has never scaled. 
    "The main reason for the increase today is the little bit of
risk-on trading," said Jim Vogel, an interest rate strategist at
FTN Financial in Memphis, Tennessee.
    Bond prices rallied on Monday as some investors covered
short positions and as terrorism concerns prompted by the
assassination of the Russian ambassador in Turkey and a truck
attack on a Berlin Christmas market raised demand for low-risk
bonds.
    U.S. benchmark 10-year Treasury notes were last
down 6/32 to yield 2.56 percent, up from 2.54 percent late
Monday.
    Investors are skittish about buying bonds on concerns about
further yield increases as they evaluate how many times the
Federal Reserve is likely to raise interest rates next year.
    Hawkish comments by Fed Chair Janet Yellen on the state of
the job market on Monday sent yields briefly higher, even as
bonds were generally stronger.
    Yellen's comments followed the U.S. central bank's policy
statement last Wednesday, which was viewed as more hawkish than
expected and which sent 10-year note yields to more than
two-year highs and two-year note yields to their highest levels
since 2009.
    Fresh economic forecasts, the first since Donald Trump won
the Nov. 8 presidential election on promises of tax cuts and
increased infrastructure spending, showed policymakers shifting
their outlook to one of slightly faster growth, lower
unemployment and inflation just under the Fed's 2 percent
target. 
    Yellen's tone also surprised some traders as she indicated
confidence the economy will support further rate increases even
though any new stimulus is unlikely until several months after
the start of the new administration.
    "Over time we need to see what's going to be coming out of
the administration, and we probably won't have a firm handle on
that until probably the beginning of spring," said Tom Tucci,
head of Treasuries trading at CIBC in New York.
    The Fed is "not going to have enough information to make
much of a move before June," Tucci said.
    Data on Thursday, including the third estimate of
third-quarter gross domestic product and personal income and
spending, will next be watched for further indications about the
strength of the U.S. economy.

 (Editing by Bill Trott and Leslie Adler)

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