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TREASURIES-Bonds rally as U.S. housing data disappoint
May 16, 2017 / 7:01 PM / 7 months ago

TREASURIES-Bonds rally as U.S. housing data disappoint

 (Adds stock weakness, updates prices)
    * Housing starts unexpectedly fall
    * U.S. factory output grows in April
    * Weaker stocks boosts demand for bonds

    By Karen Brettell
    NEW YORK, May 16 (Reuters) - U.S. Treasury yields fell on
Tuesday after data showing U.S. homebuilding unexpectedly fell
in April, adding to recent economic weakness that has raised new
doubts about how many times the Federal Reserve will raise
interest rates this year.
    Housing starts dropped 2.6 percent to a seasonally adjusted
annual rate of 1.17 million units, the Commerce Department said
on Tuesday. That was the lowest since November and followed a
downwardly revised rate of 1.20 million units in March.
    "People had been anticipating continued strength in the
housing market even with rising rates, based on the momentum
from 2016," said Jim Vogel, an interest rate strategist at FTN
Financial in Memphis, Tennessee.
    "Traders and investors are going to be sensitive to any
indication that there might be more rate sensitivity than people
thought," Vogel added.
    Benchmark 10-year notes             gained 3/32 in price to
yield 2.33 percent, down from 2.36 percent before the data's
    The yields got as low as 2.31 percent as falling stock
prices also boosted safe-haven buying of bonds.
    The weak housing data came after the New York Federal
Reserve said on Monday that state manufacturing turned negative
for the first time since October, and followed
weaker-than-expected U.S. consumer inflation data for April on
    Bucking the trend was other data on Tuesday showing that
U.S. factory output in April rose at its fastest clip in three
years on a surge in auto production.
    No major economic releases are due on Wednesday.
    Ten-year U.S. bond yields have largely stayed around 2.20
percent to 2.40 percent since March 22 as investors await
further clarity on the Fed's likely path, and whether the Trump
administration is nearer to passing tax and fiscal reforms.
    The measures are expected to boost economic growth, making
further interest rate increases more likely.
    Futures traders have reduced expectations that the Fed will
raise rates in June, though that is still viewed as likely.
    Futures traders are pricing in a 74 percent chance of a June
hike, down from 83 percent a week ago, according to the CME
Group's FedWatch Tool.
    Traders see only a 48 percent chance that two or more rate
increases will be made by the Fed's December meeting, despite
Fed officials repeating that they view two additional hikes this
year as likely.

 (Editing by Chizu Nomiyama and Richard Chang)

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