TREASURIES-Prices slide as stronger housing report weighs
* Early gains lost on stronger-than-forecast housing data
* U.S. housing starts rose 3.6 pct in June
* Lower mortgage rates, aid to home buyers cited (Adds comment, updates prices)
U.S. Treasuries prices were lower on Friday, erasing their early gains after the government data said U.S. housing starts increased in June, bolstering prospects for economic recovery and damping demand for safe-haven U.S. government debt.
New U.S. housing starts rose a bigger-than-expected 3.6 percent to a seasonally adjusted annual rate of 582,000 units from May's 562,000 units, propelled by a rise in single-family home starts, the Commerce Department said.
Single-family home starts jumped 14.4 percent, the biggest rise since December 2004.
Benchmark 10-year Treasury note prices US10YT=RR, which were up 5/32 before the data was released, were down 15/32 after the report, with the yield rising to 3.62 percent from 3.56 percent late on Thursday.
This is another piece of data for those who see the recession ending soon, said William O'Donnell, head treasury strategist at RBS Securities in Greenwich, Connecticut.
An end to the recession would tend to favor riskier investments like stocks and corporate bonds, rather than safe-haven Treasuries.
Economists generally view the manufacturing sector as slowly stabilizing so the possibility of an end to the recession in the housing sector would neutralize what has been a big contributor to the steepest downturn in the economy since the Great Depression.
The housing starts rise is clear evidence of a rebound of demand for single-family homes, said Pierre Ellis, senior economist at Decision Economics in New York. It's very convincing evidence of the potential for the general housing market to improve.
O'Donnell said he was sticking with the long-term outlook for lower rates and a flatter curve, but that near-term momentum was negative for bonds, positive for stocks and guiding to a still-steeper curve.
We'll look for opportunities to buy Treasuries, but for now, we're letting the market pause, refresh and correct, he said. Sometimes the best trade is no trade at all-- and this is hand-sitting time as the market does its dirty work.
The two-year Treasury note US2YT=RR lost 2/32 in price on Friday, its yield rising to 1.02 percent from 0.98 percent on Thursday.
Five-year Treasury notes US5YT=RR fell 9/32 in price, their yields rising to 2.51 percent from 2.44 percent late on Thursday. Thirty-year Treasury bonds US30YT=RR fell 24/32, their yields rising to 4.49 percent from 4.44 percent on Thursday.
(Additional reporting by Richard Leong; Editing by Chizu Nomiyama)