TREASURIES-Bonds gain on weak data; Fed in focus

Wed May 1, 2013 12:50pm EDT

Related Topics

* ADP payrolls growth undershoots forecasts
    * ISM manufacturing index below forecast
    * 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 payrolls data pointed to tepid U.S.
private-sector job growth, supporting the idea of a dovish
Federal Reserve statement later in the day and a subdued U.S.
employment report late this week.
    In the latest 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,. An
industry report said the pace of U.S. manufacturing growth also
slowed in April. 
    The Institute for Supply Management (ISM) said its index of 
national factory activity fell to 50.7 from 51.3 in March and
its employment index fell to 50.2 from 54.2, boding poorly for
the Labor Department's national employment report due on Friday.
    Economic growth picked up in the first quarter of the year,
but recent data has suggested it slowed again in the spring
months, a pattern seen in recent years that has become known as
a "spring swoon".  
    "We've seen the 'spring swoon' in data this year, similar to
the last couple of years," said Jake Lowery, Treasury trader at
ING U.S. Investment Management in Atlanta, Georgia.
    The statement the Fed's policy-making Federal Open Market
Committee (FOMC) will issue at the conclusion of its tow-day
policy meeting this afternoon "is likely to take notice of the
weakness in growth, inflation and even commodity prices which
impact inflation," he said.
    "The market expects some dovish language in today's (Fed)
statement," Lowery said. "That, paired with the ADP data that
came out weak, is helping to push Treasuries prices higher."
    Near midday and about two hours before the Fed will release
its statement, the benchmark 10-year Treasury note 
was up 14/32, its yield easing 1.628 percent, the lowest
intra-day level so far this year.
    The 30-year Treasury bond was up 1-4/32, its
yield easing to 2.82 percent from 2.88 percent late on Tuesday.
    Investors' concern about the pace of economic growth was not
limited to the U.S. economy. Prices of safe-haven U.S. debt
opened modestly higher on Wednesday 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 around 2:15 p.m. EDT (2015 GMT), analysts said.
    The Federal Reserve is expected to keep buying $85 billion
of bonds a month. With the central bank's favored inflation
gauge slipping and employment growth appearing 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. 
    The U.S. Treasury Department said it will sell a total of
$72 billion in three-, 10- and 30-year Treasuries next week in
its quarterly refunding. The auctions will raise about $12.4
billion in new cash.
    It said it would stick with similar auction sizes as in
previous quarters - with $32 billion in three-year notes, $24
billion in 10-year notes and $16 billion in 30-year bonds - but
might reduce the size of future note and bond auctions,
depending on the government's fiscal situation.
    Treasury also agreed on a structure for its planned
floating-rate note issue. The first auction should happen either
in the last quarter of this year or the first quarter of 2014. 
    "The push toward issuance of floating rate securities and
the  anticipated decline in the quantity of coupon bonds being
issued is another technical reason for the decline in rates this
morning," Lowery said.
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