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TREASURIES-Bonds rise on weak U.S., European data
* U.S. private job growth slows more than expected * Euro zone factory sector contracts further in April * U.S. Treasury, as expected, to sell $72 bln coupon debt By Ellen Freilich NEW YORK, May 2 (Reuters) - U.S. Treasury debt prices rose o n W ednesday as weakness in European manufacturing and slower private-sector hiring in the United States fueled expectations of a global slowdown and boosted demand for low-risk investments. The latest data on both sides of the Atlantic also fed expectations the U.S. Federal Reserve and European Central Bank might provide more stimulus to support their economies, which would be positive for the bond market, analysts said. "People are forced to buy because of the weak economic data here and Europe," said Jason Rogan, director of Treasuries trading at Guggenheim Partners in New York. U.S. payroll processor ADP said companies added 119,000 jobs in April, falling short of the expected 177,000 increase and the smallest monthly rise in seven months. The March increase was revised down to 201,000 from 209,000. The government said factory orders fell 1.5 percent in March on a hefty 4.0 percent drop in durable goods orders. Economists had predicted a 1.6 percent decrease. Data from the euro zone showed a deepening contraction in manufacturing and intensified worries that even its strongest economies were feeling the impact of their austerity-stricken neighbors.. "Europe has a very severe growth problem," said Mike Dueker, chief economist with Russell Investments in Seattle, which manages about $155 billion. Those concerns revived bids for low-risk U.S. and German government securities. Five-year and 10-year Bund yields fell to record lows, according to Reuters data. Treasuries prices held at key chart resistance levels as traders remained reluctant to push prices up or make yields test lower trading ranges before Friday's U.S. April payroll data, investors said. In the open market, benchmark 10-year Treasury notes traded up 6/32 in price to yield 1.92 percent, down 3 basis points from late on Tu esday. The 10-year yield is stuck in a tight trading range. It has been holding below the key 2-percent chart support level, which is also the Fed's implicit target on inflation. Thirty-year bonds rose 22/32 in price for a 3.11 percent yield, down 4 basis points from Tuesday's close, and near a three-month low set more than a week ago. "We have to see whether last month's number would be reversed," said James Barnes, a portfolio manager at National Penn Investors Trust Co in Wyomissing, Pennsylvania, which manages $2.5 billion in assets, referring to the March payrolls report that showed a weaker-than-expected 120,000 increase. Some analysts said the hiring slowdown in March and April was a "payback" from earlier this year when construction and other weather-sensitive industries either fired fewer workers or hired more of them because of the unusually mild winter. The U.S. Labor Department will release its April jobs report o n F riday at 8:30 a.m. (1230 GMT). Economists expect employers likely added 170,000 jobs in April. POSITIONED FOR PAYROLLS Rob Robis, head of fixed-income macro strategies for ING Investment Management, a firm with $160 billion in assets under management, said if job growth in April looks as slow - or not much stronger - than it did in March, that would mean two straight months of a slower rate of job growth, more convincing evidence of slower growth for markets than a single weak month. "After the weak ADP number, and even before its release, the bond market had priced in another weak payrolls number showing job growth of 160,000 or 170,000," Robis said. That means the risks "are more toward an upside surprise." Robis said with the 10-year yield already at the low end of its months-long range at 1.92 percent, bonds "won't rally much" if payrolls added only 140,000 or 150,000 jobs last month. But job growth of 100,000 would be "a large miss to the downside," he said. "Stocks would sell off and riskier assets would reprice. That's what it would take to get Treasury yields to go much lower." Conversely, an upside surprise on payrolls growth, of 200,000 or so, would cause yields to rise, Robis said. But even then, not by much. "Yields would rise back to the 2 percent area or 2.05 percent," he said. In the supply arena, the Treasury Department said it would sell a combined $72 billion in new three-, 10- and 30-year debt next week at its May quarterly refunding, the same amount sold at its last quarterly refinancing in February. The effort will raise $35.3 billion in new cash. The Treasury said it had not decided whether to begin issuing floating-rate securities or to accept negative yield bids at regular bill and coupon debt auctions. The Federal Reserve sold $1.34 billion in Treasury Inflation-Protected Securities, part of its $400 billion "Operation Twist" program that involves selling shorter dated debt and buying longer-dated issues.
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