TREASURIES-U.S. bonds climb after ADP employment data
* May ADP employment weaker than forecast * ADP report points to continued Fed purchases * ISM non-manufacturing index forecast at 53.5 due 10 a.m. EDT * Focus shifts to Friday's U.S. employment data By Ellen Freilich NEW YORK, June 5 (Reuters) - U.S. Treasuries prices rose on Wednesday after a weaker-than-expected private sector employment report pointed to the Federal Reserve providing continued support for the economy and financial markets. The benchmark 10-year Treasury note, up 5/32 of a point before the report, was up 12/32 afterwards, leaving its yield at 2.11 percent, down from 2.15 percent late on Tuesday. "The weak ADP number this morning is not keeping pace with the Fed's hope that they will get unemployment under 6.5 percent anytime soon and has the bears covering Treasury shorts," said Tom di Galoma, head of fixed-income sales at E D & F Man Capital. "The ADP figures could cause the economists on the Street to lower their U.S. non-farm payroll growth estimates before the Labor Department releases its report on Friday." Recent days had seen a spike in bond "shorts," or bets that Treasury bond prices will fall further, analysts said. Shorts, especially against the 10-year issues, had increased, making it more expensive for traders to borrow Treasuries in the repurchase agreement, or repo, market. Payrolls processor ADP said U.S. private employers added 135,000 jobs in May. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 165,000 jobs. Stone & McCarthy Research Associates economist Ray Stone said, however, he was "disinclined" to alter his firm's 200,000 private sector payroll forecast. "We envision some upside risk (to Friday's payrolls report) stemming from the five-week interval between the April and May surveys, as well as the likely reversal of April weather-related weakness in Wisconsin," Stone said. Investors saw the data as an argument for the Fed to maintain its accommodative monetary posture, which currently includes $85 billion a month in purchases of Treasuries and mortgage-backed securities. "Bad news is good news ... because it keeps the Fed accommodative, buying bonds and (keeping) interest rates low," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York. Fed policymakers want to see the unemployment rate around 6.5 percent from its current 7.5 percent, with a sustained run of healthy jobs gains. They also want inflation to reach two percent and it has been running substantially under that level. A particularly strong Friday payrolls number could push benchmark yields higher. But a poor figure could see yields slip, perhaps even below 2 percent. The government's May payrolls report on Friday could show whether job growth is strong enough for the U.S. central bank to consider tapering bond purchases. Fed Chairman Ben Bernanke and other top Fed officials suggested recently they could start paring bond buys as soon as the Fed's next few meetings if the economy improves further. Economists recently polled by Reuters forecast U.S. employers likely added 170,000 jobs in May, while the jobless rate was seen unchanged at 7.5 percent. The Fed will hold its next policy meeting on June 18-19. The 30-year bond was up 17/32 in price to yield 3.285 percent from 3.315 percent late on Tuesday.
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