10-year yields down on day following lackluster new housing data

July 19 (Reuters) – The US 10-year Treasury’s yield was down on Wednesday following new home construction data for June but remained above its month low as investors bet that the Federal Reserve is nearing the end of its rate-hiking cycle.

Benchmark 10-year Treasury yields dipped 4.5 basis points to 3.744%, compared to an eight-month high of 4.094% set on July 7.

Two-year yields, meanwhile, ticked up slightly by 1.1 basis points to 4.763% after a brief drop immediately following the morning’s new housing data. They were similarly down from 5.120% on July 6, their highest since June 2007.

The yield curve inversion between two-year and 10-year notes widened to minus 102.4 basis points.

New data on Thursday from the Commerce Department showed US housing starts fell by 8% in June to 1.43 million, lower than the 1.55 million in May, in large part due to a decrease in multifamily construction. Building permits also fell in number, according to the data.

“Yes, there is a little bit of a downward revision from last month, but we’re still going at a housing run rate which is impressive given the level of interest rates,” said Guy LeBas, chief fixed income strategist at asset manager Janney Montgomery Scott.

While mixed in views as to the Fed’s rate path for the remainder of the year, market participants largely anticipate a 25 basis point rate hike following the Fed’s meeting next week on July 25-26.

“I think it would take something quite dramatic to get them to move in September,” said Eric Winograd, director of developed market economic research at AllianceBernstein.

Other market participants put more weight on the idea of a further rate hike before year’s end.

“The persistence of the core inflation is going to probably keep the Fed in the game at least for July and maybe one more after that,” said Lou Brien, market strategist at DRW Trading Group. “And in that sense, the 10-year will benefit from the Fed being more aggressive.”

The Treasury Department auctioned USD 12 billion in 20-year bonds on Wednesday, as well as USD 46 billion in 17-week bills. The 20-year’s yield was down a basis point to 4.064% from 4.074% immediately before the auction.

The next major data points for market participants will come on Thursday with the latest existing home sales and initial jobless claims data, the latter of which is unlikely to sway the Fed’s rate decision next week, according to Winograd.

“There’s nothing to make one think that we should see a dramatic change there,” Winograd said. “It’s off the lows and … consistent with this idea of a gradual rebalancing of the labor market.”

July 19 Wednesday 3:55 PM New York / 1955 GMT

 (Reporting by Matt Tracy; Editing by Jon Boyle and Will Dunham)