TREASURIES-Prices gain as US government shutdown seen hurting economy
* US shutdown seen hurting economy, delaying Fed tapering * One-month T-bill yields rise in debt ceiling fears * Fed to buy $2.75-$3.50 bln notes due 2020-2023 By Karen Brettell NEW YORK, Oct 7 (Reuters) - U.S. Treasuries prices gained on Monday as lawmakers in Washington showed no progress towards ending a partial government shutdown, raising concerns about its impact on economic growth, and on concerns over the looming showdown over raising the country's $16.7 trillion debt ceiling. The government moved into the second week of a shutdown on Monday with no end in sight. Many U.S. economic releases, including crucial monthly payrolls data that that had been scheduled for last Friday, have been delayed due to the shutdown. "The uncertainty in Washington is the clearest touchstone for the push towards Treasuries prices, obviously the longer that the government is shut down the more damaging it potentially becomes for the economy," said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut. Investors are also focused on the release on Wednesday of minutes from last month's Federal Reserve policy meeting, which could reveal more about why the central bank shocked markets by deciding not to begin reducing its $85 billion a month bond purchase program. The longer the shutdown lasts, the less likely the Fed is to begin cutting back on bond purchases, especially as it is unable to view government-issued data to gain a sense of the strength of the economy. Benchmark 10-year notes were last up 10/32 in price to yield 2.61 percent, down from 2.65 percent late on Friday. The yields have dropped from 3.00 percent, the highest in over two years, on September 6. Squabbling over raising the country's debt ceiling was also hurting riskier assets such as stocks, which may have added a bid to Treasuries. Republican House Speaker John Boehner vowed on Sunday not to raise the U.S. debt ceiling without a "serious conversation" about the country's rising debt levels, while Democrats said it was irresponsible and reckless to raise the possibility of a U.S. default. Most market participants see the United States as very unlikely to miss payments on its debt, because a default would likely have severe consequences, disrupting short-term funding and collateralized markets that are backed by Treasuries, and potentially creating broad aversion to U.S. debt that would raise the country's borrowing costs. Some investors are nonetheless avoiding shorter-dated bills that are most at risk of any delay in being repaid, and fears that the increasingly divided Congress will be unable to come to a solution may increase over the coming weeks. One-month Treasuries bills are yielding 0.15 percent, higher than three-month and six-month bills, which pay 0.04 percent and 0.10 percent, respectively. U.S. Treasury Secretary Jack Lew has warned Congress the United States would exhaust its borrowing capacity no later than Oct. 17, at which point it would have only about $30 billion in cash on hand. The Fed will buy between $2.75 billion and $3.50 billion in notes due from 2020-2023 on Monday as part of its ongoing purchase program.
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