Treasury Prices Rise on Housing Report

NEW YORK —- U.S. Treasury prices were higher Tuesday morning following a mixed housing report and ahead of this week's Federal Reserve meeting.

At 11 a.m. EDT, the 10-year Treasury note was up $2.19 per $1,000 in face value, or 7/32 point, from its level at 5 p.m. Monday. Its yield, which moves in the opposite direction, fell to 4.54 percent from 4.57 percent.

The 30-year bond rose 9/32 point. Its yield fell to 4.70 percent from 4.72 percent.

The 2-year note rose 2/32 point. Its yield fell to 4.60 percent from 4.63 percent.

Yields on 3-month Treasury bills were 5.05 percent as the discount rate rose 0.01 percentage point to 4.92 percent.

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Treasury prices lost some ground early on Tuesday after a Commerce Department report showed that home construction surged in February, but building permits fell. Bonds quickly recovered after the report.

"People are willing to buy on the dips, especially ahead of Wednesday's meeting," said John Spinello, Treasurys strategist at Jefferies & Co. in New York.

On Wednesday, the Federal Open Market Committee is widely expected to leave its federal funds target rate unchanged at 5.25 percent, at the conclusion of its two-day meeting. Investors will be eying the meeting statement for any possible tinkering with the Fed's tightening bias or mention of recent subprime mortgage woes.

Housing numbers Tuesday were the only data of the day. While housing starts' headline number was stronger — up 9 percent to a seasonally adjusted 1.525 million annual rate in February — the report still showed weakness. Regionally, starts fell 29.7 percent in the Northeast and 14.4 percent in the Midwest, though they climbed 18.0 percent in the South and 26.4 percent in the West.

"I don't think there's any feeling that the housing market is out of the woods yet by any means," Spinello said.

January starts were revised to 1.399 million, down an unrevised 14.3 percent. Economists had expected February's housing starts to come in lower than they did, at 1.450 million.

Building permits — a gauge of future starts — decreased in February by 2.5 percent to a 1.532 annual rate, the Commerce Department said.

Housing starts have seesawed of late, with starts surging in December, plunging in January and now rising in February. Economists had chalked gyrations up to December's unusually mild weather.

Overall, both series of data Tuesday seem to support the Fed's characterization of housing as showing "some tentative signs of stabilization," said T.J. Marta, fixed-income strategist at RBC Capital Markets.

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