March 12, 2015 / 8:27 PM / 3 years ago

TREASURIES-Prices ease as rally sputters after bond auction

* Treasury auction triggers pullback

* Long bond off the most in price

* Early gains on soft retail report dwindle (Recasts, adds auction results and late prices)

By Michael Connor

NEW YORK, March 12 (Reuters) - U.S. Treasury debt prices eased on Thursday, with yields on long-maturity issues inching higher for the first time this week after a weak auction of $13 billion of 30-year bonds.

Late selling spurred by the government auction curbed earlier price gains fueled by unexpectedly weak U.S. retail sales data and knocked 30-year bonds into negative territory.

The 30-year Treasury, which has benefited most from this week’s relative-value investment flows caused by Europe’s massive bond-buying program, was last down 9/32 and yielding 2.963 percent after touching a low of 2.634 percent.

The benchmark 10-year note was last off 1/32 and yielding about 2.11 percent, according to Thomson Reuters data.

Gains for other maturities narrowed after the U.S. Treasury Department sold previously issued 30-year bonds at a yield of 2.681 percent to soft demand, Treasury data showed.

The ratio of total bids to the amount offered was 2.18, which was the lowest level since last May. In February, this gauge of overall demand was 2.26, the department said.

“The auction was weak,” said CRT Capital strategist Ian Lyngen.

Treasuries had been rallying since Monday, when the European Central Bank began a 1.1 trillion euro bond-buying program to battle economic sluggishness, enhancing the relative value of much higher-yielding U.S. debt securities.

European bond yields have plumbed record lows this week. The 10-year German bund last yielded 0.237 percent, or about 184 basis points under the 10-year Treasury.

U.S retail sales dropped 0.6 percent last month, after declining 0.8 percent in January, and were slowed by harsh weather in much of the country. It was the first time since 2012 that sales had dropped for three consecutive months.

The persistent weakness in retail sales stoked speculation over the timing of interest rate hikes by Federal Reserve policymakers. They meet next week and may move towards ending an era of near-zero U.S. rates by removing the word “patient” from a post-meeting comment.

“Today is not necessarily a game changer for the Fed. I think they take out ‘patient’ next week and we are still looking at mid-2015 liftoff,” said Justin Lederer, an analyst at Cantor Fitzgerald in New York. “But if we keep getting weak data prints, we could get delays in liftoff.” (Reporting By Michael Connor in New York; Editing by Meredith Mazzilli)

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