TREASURIES-Losses after ADP, Q2 GDP data hint at less stimulus
* 2nd-qtr GDP stronger than forecast at 1.7 percent * ADP private sector employment data higher than predicted * Treasury refunding details might include selling fewer bonds * Fed statement later to be scrutinized for timing of tapering * Key July jobs report due Friday By Ellen Freilich NEW YORK, July 31 (Reuters) - U.S. Treasuries prices weakened on Wednesday after reports showing economic growth accelerated in the second quarter and that private sector employment grew more than forecast in July arguably inched the Federal Reserve a step closer to cutting back its monetary stimulus. U.S. Treasuries opened lower, widened losses when payroll processor ADP said private sector employers added 200,000 jobs in July, and extended losses again when the government reported U.S. gross domestic product (GDP) grew a stronger-than-forecast 1.7 percent in the second quarter. Treasuries prices weakened mainly on the premise that the data could bring the Fed a step closer to reducing its monetary stimulus. The benchmark 10-year Treasury note was down 18/32, its yield rising to 2.679 percent from 2.61 percent late on Tuesday. The 30-year bond was down 25/32, its yield rising to 3.73 percent from 3.68 percent late on Tuesday. Still, the selloff was not dramatic. the Q2 GDP data still pointed to "sluggish" Q3 growth which should "stay (the Fed's) hand from tapering very soon," said Cary Leahey, senior advisor to Decision Economics in New York. "Inventories may have to be worked off, and more sequester-related wage and spending cuts are unfolding in July," he noted. "Even if this Friday's jobs report is close to the 200,000 jobs disclosed in today's ADP report, the Fed is more likely to ask for a plan to made ready for a vote in September for action later in the year," Leahey said. Other bond strategists were also skeptical that the GDP data was a rallying cry for tapering. CRT Capital Group senior government bond strategist David Ader said the Q2 GDP was "a wash" when seen in the light of revisions to first quarter growth, and would not "accelerate" any plans the Fed might have to trim its bond purchases. "The Q2 price data (was) very (bond) friendly," he added. The Q2 core personal consumption expenditure (PCE) index was up an annualized 0.8 percent in the second quarter. The Treasury's refunding announcement had little discernible market impact. The Treasury said its $72.0 billion refunding package would be comprised of a $32 billion 3-year note auction, a $24 billion 10-year note sale, and a $16.0 billion 30-year bond auction, scheduled for next Tuesday, Wednesday and Thursday, respectively. "Although there were no changes in auction sizes for the refunding, Treasury did say they expect to 'gradually decrease' auction sizes over the coming quarter, with the reductions likely take place in the 2-year and 3-year auctions," said John Canavan, senior analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. The Treasury also said it expected to hold its first floating rate note auction in January 2014. As the market sifted through the implications of the Q2 GDP report, it also settled into a waiting mode in the hours before the Federal Reserve ends a two-day meeting by issuing a policy statement. Its words will be parsed for guidance on when the Fed might begin to scroll back on the large-scale bond purchases that have been part of its monetary stimulus strategy. Fed officials, including Chairman Ben Bernanke, have spoken of a pullback, remarks that have driven up yields since May. News that the pace of business activity in the U.S. Midwest picked up modestly in July, though growth in new orders and employment both cooled, briefly appeared to put some additional downward pressure on bond prices. The Institute for Supply Management-Chicago business barometer rose to 52.3 from 51.6, though it fell short of economists' expectations for an increase to 54.0. A reading above 50 indicates expansion in the regional economy.
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