NEW YORK (Reuters) - U.S. Treasuries traded in a narrow range, near unchanged, on Wednesday with concerns about Europe limiting losses and with imminent Treasury supply and more upbeat data on the U.S. housing market countering gains.
Sustaining the bid for safe-haven U.S. government debt was the view that a two-day European summit starting Thursday would not produce any quick solutions to the euro zone's debt crisis.
On the opposite side of the trade upcoming supply, a report showing an increase in contracts to purchase previously owned U.S. homes in May, and possible quarter-end balance sheet considerations motivated sellers.
"The range is tightening. The big issues remain unresolved and will stay that way for months to come," said David Ader, head of government bond strategy at CRT Capital.
Benchmark 10-year note prices, which were up 2/32 earlier, were down 1/32 in mid-morning trade, their yields at 1.63 percent, near the mid-point of their recent range.
5-YEAR TREASURY NOTE AUCTION
The Treasury will auction $35 billion in five-year notes at 1 p.m. EST.
Like most of the rest of the Treasury curve, five-year notes have been "extremely range-bound over the past few weeks," said Justin Lederer, a strategist at Cantor Fitzgerald in New York.
Demand for the five-year notes should be "decent," Lederer said, but a small price concession built in before the 1 p.m. EST bidding deadline was not surprising.
The new five-year notes yielded 0.735 percent in when-issued trade. The current record low yield for a 5-year auction is 0.748 percent, Lederer noted.
EUROPE ON THE HORIZON
Europe remained a key concern, its issues arguing for low interest rates for some time to come, investors said.
A two-day European Union meeting begins on Thursday, but expectations about what constructive steps the gathering could take are subdued after German Chancellor Angela Merkel on Tuesday expressed strong opposition to debt sharing, or euro bonds, a strategy supported by France, Italy and Spain.
On Wednesday, Merkel told the lower house of the Bundestag that Germany's resources were finite and said there were no easy or quick solutions to the euro zone's debt crisis.
"The elephant in the room is still Europe," said Wilmer Stith, portfolio manager at Wilmington Broad Market Bond Fund at Wilmington Trust Investment Advisors. Consequently, steady Spanish and Italian yields on Wednesday helped keep U.S. Treasury yields little changed.
Ader said Treasuries prices already reflect the softer tone of U.S. economic data so the "sideways range trade" could continue, subject to the possible influence of "Fedspeak, the Supreme Court, the EU summit, and month-end."
William O'Donnell, managing director and head of U.S. Treasury strategy at RBS in Stamford, Connecticut, said at least for dealers, balance sheet commitments "could fall back a little bit as we get to quarter-end.
"It's a quarter-end accounting even so you get some swings," he said.
There was little impact from data showing demand for long-lasting U.S. manufactured goods rebounded more than expected. Slowing global growth suggests the momentum might not be sustained, economists said.
Investors will focus on the U.S. weekly jobless report on Thursday.
"Apart from Europe, the most thing we're following is weekly jobless claims which are higher than we'd like to see them," Stith said. "If they remain in the 385,000 to 400,000 range, it will be hard to generate meaningful monthly payroll gains.
"Europe, the economic slowdown here, and the 'fiscal cliff' in this country suggest we'll be in a low-interest-rate environment for quite some time," he said.
