TREASURIES-Prices gain as China, ECB rate cuts show growth concerns

By Karen Brettell
NEW YORK, July 5 (Reuters) - U.S. Treasuries prices rose on
Thursday after China and the European Central Bank surprised
markets with interest rate cuts that were more aggressive than
expected, raising concerns that the global economy may be
slowing more than anticipated.
Prices temporarily pared gains after U.S. data showed
private-sector hiring in June was stronger than forecast.
China's central bank cut interest rates for the second time
in two months, while the European Central Bank cut interest
rates to a record low 0.75 percent and lowered its deposit rate,
which acts as a floor for the money market, to zero from 0.25
percent.
"The China cut was a surprise, as was for many the deposit
rate cut by the ECB," said Jim Vogel, interest rate strategist
at FTN Financial in Memphis, Tennessee.
"The market is trying to figure out whether things are worse
than they thought, or whether we are going to get continued
stimulus and improved performance in risk assets," Vogel said.
Comments from ECB President Mario Draghi added to negative
economic sentiment and increased fears that Europe's debt crisis
will continue to worsen.
"We see now a weakening of growth in the whole of the euro
area, including the country or countries that had not
experienced that before," he said.
Treasuries temporarily pared price gains and yields hit
session highs after the ADP National Employment Report showed
that U.S. private employers added 176,000 jobs in June, topping
economists' expectations of 105,000 jobs.
This selloff faded, however, as traders looked further into
the data and saw that most of the surprise growth was related to
small companies in the service industry, Vogel said.
Treasuries also gained a bit after data from the Institute
for Supply Management showed that growth in the dominant U.S.
services sector slowed in June to a two-and-a-half year low.

Price gains were seen limited, however, as investors focused
on the government's comprehensive payroll report that will be
released on Friday.
"The release of the ADP this morning is probably going to
cap prices heading into payrolls, guys are going to be a little
bit hesitant about taking the market much higher here until we
see what the actual number is," said Sean Murphy, a Treasuries
trader at Societe Generale in New York.
The data is expected to show that employers added 90,000
jobs in June, according to the median of 77 economists polled by
Reuters.
Traders may now be looking for a number slightly over
100,000, following the ADP report, said Murphy.
Benchmark 10-year notes were last up 9/32 in
price to yield 1.60 percent, down from 1.63 percent on Tuesday.
The yields fell to a session low of 1.58 percent after the China
rate cut.
The Federal Reserve bought $4.71 billion in notes due 2020
to 2022 on Thursday as part of its Operation Twist program,
which is designed to lower long-term borrowing costs.