TREASURIES-Bonds gain on weak data; Fed in focus

Wed May 1, 2013 9:49am EDT

Related Topics

* ADP payrolls growth undershoots forecasts
    * ISM manufacturing index forecast at 50.9
    * Fed announcement to be watched for more dovish tone

    By Ellen Freilich
    NEW YORK, May 1 (Reuters) - U.S. Treasuries prices rose on
Wednesday after a report from a payrolls processor pointed to
tepid U.S. private-sector job growth in April, supporting the
idea of a dovish-sounding Federal Reserve statement later in the
day and a subdued U.S. employment report late this week.
    In the latest piece of evidence to suggest slower U.S.
economic growth, the ADP National Employment Report said the
U.S. private sector added 119,000 jobs in April, well below
economists' expectations in a Reuters poll for 150,000.
 
    The benchmark 10-year Treasury note was up 10/32
after the report, its yield easing to 1.64 percent from 1.68
percent late on Tuesday.
    The 30-year Treasury bond was up 26/32, its
yield easing to 2.84 percent from 2.88 percent late on Tuesday.
    "Since the last FOMC meeting, the data have been coming in
weaker than expected," said Sam Bullard, senior economist at
Wells Fargo in Charlotte, North Carolina. "The market (took)
this report to suggest that the Fed will continue with its
quantitative easing" and "temper the tone" in the FOMC minutes
about tapering off its large-scale purchases of bonds, he said.
    The market's next focus is on the closely watched Institute
for Supply Management (ISM) monthly report on manufacturing, due
at 10 a.m. EDT (1400 GMT). The April ISM index is forecast at
50.9, according to a Reuters poll, down from 51.3 in March.
Readings above 50 point to expansion; readings below 50 reflect
contraction.
    Investors' concern about the pace of economic growth was not
limited to the U.S. economy. Prices of safe-haven U.S. debt
opened higher after an official purchasing managers' index
showed that growth in China's manufacturing sector unexpectedly
fell in April as new export orders fell.
    Both the domestic and global picture point to continued
monetary accommodation by major central banks, including the
Federal Reserve whose two-day meeting concludes with the release
of a statement later on Wednesday, analysts said.
    The Federal Reserve is expected to keep buying $85 billion
of bonds a month and because the central bank's favored
inflation gauge is slipping and employment growth seems stymied,
the debate in the Federal Open Market Committee (FOMC) could
begin to shift away from the prospect of reducing stimulus
toward a discussion about doing more. 
 
   Currently, analysts see the Fed buying a total $1 trillion in
Treasury and mortgage-backed securities during the ongoing third
round of quantitative easing, known as QE3. Until recently,
analysts had believed the Fed would start taking the foot off
the accelerator in the second half of the year.
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