TREASURIES-Prices fall as risk appetite drives up stocks

Tue Apr 2, 2013 12:59pm EDT

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* Market awaiting U.S. payrolls on Friday
    * Solid U.S. job growth seen, but Fed seen holding steady


    By Ellen Freilich
    NEW YORK, April 2 (Reuters) - Prices of U.S. Treasuries fell
on Tuesday as investors favored riskier assets, driving stock
market gains and hurting demand for safe-haven U.S. debt.
    The S&P 500 stock index pushed to within striking
distance of its all-time high ahead of the influential U.S.
monthly jobs report due on Friday.
    Even though solid job gains are expected to be recorded for
March, improvement in the labor market is not expected to cause
the U.S. Federal Reserve to turn down the heat on its stimulus
measures. The Fed's loose monetary policy is considered
particularly favorable for riskier assets.
    "It's a risk-on move, and we can see that in the equity
market gains and in the continued desire to invest in corporate
credit and high-yield bonds," Matthew Duch, portfolio manager at
Calvert Investment Management, Inc. in Bethesda, Maryland, said
of Tuesday's price moves.
    Benchmark 10-year Treasury notes slipped 10/32,
their yields rising to 1.87 percent from 1.84 percent on Monday.
    "With long-end supply coming next week, we favor selling
10-years near 1.83 percent support given that we have a job
growth figure Friday that will most likely print north of
200,000," said Tom DiGaloma, managing director at Navigate
Advisors LLC.
    The U.S. Labor Department's monthly non-farm payrolls report
on Friday will be closely scrutinized for signs of further
improvement in hiring.
    According to the median estimate of economists polled by
Reuters, a total of 200,000 jobs is expected to have been added
in March. 
    Still, Federal Reserve monetary policy is not likely to
become less stimulative, given problems in the euro zone and
other uncertainties that could impact U.S. growth, Duch said.
    The easy monetary policy, which includes buying Treasuries,
is supportive for U.S. debt, but even more bullish for the
riskier assets like stocks, he said.
    "The expectation is for the unemployment rate to be steady
or fall slowly over time," Duch said. "We're not going to see
any dramatic surprises that will cause the Fed to tone down what
it's doing right now because it's more about the trend as a
whole. Even as the U.S. economy improves, the Fed is worried
about overseas events affecting our situation here."
    The Fed bought $1.575 billion in Treasury coupons maturing
between February 2036 and February 2043 on Tuesday, according to
the New York Fed.
    Overseas, the euro zone saw another below-50 reading in the 
Purchasing Managers Index on manufacturing, the 20th month in a
row in which the reading indicated contraction in the factory
sector. Euro zone unemployment stood at 12 percent in February.
    Markets will get a first look at the U.S. labor market for
March with the release on Wednesday of data on private-sector
hiring by payrolls processor ADP.
    Two Federal Reserve bank presidents are scheduled to speak
during the day: Narayana Kocherlakota, president of the
Minneapolis Fed, at 1 p.m. (1700 GMT), and Dennis Lockhart,
president of the Atlanta Fed, at 1:30 p.m. (1730 GMT). The
president of the Chicago Fed, Charles Evans, and Jeffrey Lacker,
president of the Richmond Fed, will participate in a panel on
monetary policy at 7:30 p.m. (2330) GMT.
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