TREASURIES-Bonds slip on stronger-than-forecast data

Wed Oct 3, 2012 12:42pm EDT

* ADP payrolls report slightly stronger than forecast
    * ISM report on service sector higher than expected
    * Market awaits U.S. payrolls data due Friday


    By Ellen Freilich
    NEW YORK, Oct 3 (Reuters) - U.S. Treasuries prices slipped
on Wednesday after stronger-than-forecast reports on the labor
market and the U.S. service sector cooled the bid for safe-haven
U.S. debt before the key U.S. payrolls report due on Friday.
    Trade was in a narrow range. Prices of short- and
medium-term Treasuries were unchanged.
    Minor losses occurred at the long end of the yield curve,
partly due to hedging of corporate deals.
    "There's rate-locking and traders are adding to steepening
exposure," said Tom di Galoma, managing director at Navigate
Advisors LLC in Stamford, Connecticut. "They're selling the long
end to buy the front end."
    The day's economic reports were mildly bearish for
Treasuries.
    Payrolls processor ADP's report that U.S. private-sector
employers added 162,000 jobs in September, topping economists'
forecasts, weighed on bond prices. The impact was not dramatic,
though, because the report has not been a good immediate
predictor of job growth as reported by the U.S. Labor Department
each month.
    "The market reaction was muted," said Eric Stein, vice
president and portfolio manager at Eaton Vance Investment
Managers in Boston. "ADP is a pretty good indicator for helping
to analyze the labor market, but it has not done a very good job
of predicting the subsequent (U.S. Labor Department) payrolls
print so many short-term traders give it less weight."
    The benchmark 10-year note was down 3/32,
leaving its yield at 1.64 percent, in the middle of its recent
range.
    Jim O'Sullivan, chief U.S. economist at High Frequency
Economics in Valhalla, New York, said the data suggested about a
155,000 rise in total payroll job growth as figured by the U.S.
Labor Department. That tops the current consensus forecast,
drawn from a Reuters poll, of 113,000 new jobs for September.
    The Institute for Supply Management's September report on
the non-manufacturing sector, which showed growth in new orders,
was also upbeat for the economy and gave investors less reason
to buy safe-haven U.S. debt.
    Treasuries could tend to play defensive before Friday's
payrolls number, some analysts said.
    "Strong car sales, an improving housing sector and further
signs hiring is gradually picking up work against bond bulls,"
said Josh Stiles, managing director at IDEAglobal in New York.
"That all tends to favor (President Barack) Obama's re-election
just as the debates are about to begin and leaves dealing with
the 'fiscal cliff' as the key policy action later in the year."
    Though stronger-than-forecast U.S. payrolls figures could
inspire some selling, U.S. rates are likely to remain low for
the foreseeable future, said Tanweer Akram, senior economist at
ING Investment Management in Atlanta.
    "If non-farm payroll job growth were to be markedly above
110,000 or 115,000, that might give bonds a reason to sell off,
but there's still a lot of uncertainty around the U.S.  economic
outlook, and that's why rates are likely to remain low," he
said.
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