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.
- Tweet this
- Share this
- Digg this