TREASURIES-US yields retrace earlier gains after GDP, other data

By Matt Tracy

Dec 23 (Reuters) - U.S. Treasury yields retraced their earlier gains on Tuesday after data showed consumer confidence fell to its lowest level since April, even as the U.S. economy grew more than forecast in the third quarter.

The yield on 10-year Treasury notes US10YT=RR was last relatively unchanged at 4.171%.

The yield on the 30-year Treasury bond US30YT=RR was also unchanged at 4.829%.

Both 10- and 30-year yields retraced their gains earlier in the day, following new GDP data that showed the U.S. economy grew by 4.3% in the third quarter. This was well above Dow Jones' forecast of 3.2% growth.

The growth was due largely to strong spending by U.S. consumers, according to the Commerce Department.

"If the economy keeps producing at this level, then there isn’t as much need to worry about a slowing economy and concerns may actually flip back to the price-stability constraint," said Chris Zaccarelli, chief investment officer for Northlight Asset Management, in written comments.

Further data on Tuesday showed consumer confidence in December fell below expectations to its lowest level since April.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 3.81 basis points at 3.544%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at 63.1 bps.

The U.S. dollar five-year forward inflation-linked swap USIL5YF5Y=R, seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.447%.

Market bets that the Federal Reserve will cut its key interest rate at its January meeting have fallen since Monday to 13.3%.

The Treasury Department scheduled several major debt auctions this holiday week. Its auction of $70 billion in five-year notes US5YT=RR on Tuesday saw a bid-to-cover ratio of 2.35, which was below the historical average of 2.4 for similar auctions.

"The Fed has made a concerted effort to lay the groundwork for a pause in rate cuts early next year," BMO rates strategists wrote in a Tuesday note.

"A Fed that is tapping the brakes on further rate cuts isn't necessarily constructive for the 5-year sector," they added.

Five-year note yields were last up 2.1 bps at 3.739%.

Monday's $69 billion two-year note auction also saw a lower bid-to-cover ratio than previous such auctions. Treasury will auction $44 billion in seven-year notes US7YT=RR on Wednesday.

The bond markets will close early on Wednesday at 2 p.m. ET and remain closed through the Christmas holiday on Thursday.