NEW YORK, Dec 26: US government debt prices rose on Wednesday, erasing earlier losses, as traders covered short positions prior to a $22 billion two-year debt auction.

Treasuries were initially lower on players making bets on poor demand for new monthly supply of government notes, but weak data on housing and retail sales resulted in an unwinding of those short trades, analysts said.

“The Street tried to make a run at lowering the market before the auction,” said William O’Donnell, director of interest rate strategy at UBS Securities in Stamford, Connecticut. “But the data got in the way.” With few players back to work after the Christmas holiday, bidding at the 2-year note auction, at 1800 GMT, will likely be confined to Wall Street bond dealers, O’Donnell said.

“This will be a dealer-led auction.” Two-year Treasury notes were unchanged in price, erasing a 3/32 decline, while their yield was 3.24 per cent US2YT=RR, down 1 basis point from late Monday.

The benchmark 10-year Treasury note’s price was up 3/32, wiping out an earlier 8/32 decline. Trading volume was light with many European markets closed a day after Christmas. Treasury trading volume was 68 per cent below its 20-day average, according to bond broker ICAP.

On the data front, several reports suggested the US housing slump is far from over and mixed Christmas resultsfrom retailers boosted expectations of more interest rate cuts from the Federal Reserve to stimulate the economy.

The Standard & Poor’s/Case-Shiller index of home prices in 10 metropolitan areas fell 6.7 per cent in October, its biggest-ever annual drop.

The International Council of Shopping Centers and UBS reported domestic chain store sales rose 2.8 per cent in the week ended Dec 22 from a year earlier, while Redbook Research said its chain-store sales index was up 1.2 per cent from a year ago.

The weak economic data hurt stocks and renewed safe-haven bids for bonds, analysts said.

—Reuters