TREASURIES-Prices slip but uncertainty limits downside
* Government shutdown and debt ceiling in focus * U.S. sells $30 billion four-week T-bills at 0.35 percent * Bid for Treasury's $30 bln 3-year note auction called aggressive * Fed buys $1.46 billion of bonds due 2038-2043 * Fed minutes on Wednesday will be watched for tapering clues By Ellen Freilich NEW YORK, Oct 8 (Reuters) - U.S. Treasuries prices slipped slightly on Tuesday, but losses were held in check by a liquidity bid inspired by stock market losses and an apparent lack of progress on resolving a partial government shutdown and lifting the U.S. debt ceiling. Two Treasury auctions with sharply contrasting results offered a bifocal view of the bond market. A $30 billion four-week Treasury bill auction was done with an unusually high yield to attract buyers due to doubts about timely payment, given the $16.7 trillion U.S. debt ceiling that must be raised before those bills mature. In contrast, the Treasury's $30 billion sale of three-year notes drew a bid some called aggressive. Investors accepted the 0.71 percent yield on the new three-year note since short-term interest rates are likely to remain anchored near zero for much of that time frame. Also, the first coupon payment on the note is not due for six months, by which time the debt ceiling issue presumably will have been resolved. The impact of the debt ceiling uncertainty was concentrated in the one-month bill sale, said David Robin, managing director at Newedge, a futures broker and clearing firm in New York. "The one-month bills are the focus of attention. It's the spot where people will place their debt ceiling bets," he said. Many investors are hesitant to enter new trades with scant signals from Washington over when the government shutdown and debt ceiling issues will be resolved. This week, markets are more anxious than they were early last week when people thought the government shutdown would be fairly short-lived. "It's fear of the unknown," Robin said. "If you put five people in a room and you ask them what would happen in a U.S. debt default, no one really knows. Except it will be chaos." The two auctions demonstrate how the market has "ring-fenced the coupons and bills in that red zone that would be the first affected if the debt ceiling is not raised," said Steven Van Order, fixed income strategist at Calvert Investments in Bethesda, Maryland. Apart from that, "the market is quiet, waiting to see what happens," he said. 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. Markets are likely to become more volatile as that date approaches, as fears will likely grow that the political dysfunction may be too great to pass a resolution to raise the debt ceiling. Meanwhile, many U.S. economic releases issued by the government, including Tuesday's international trade data and the crucial monthly payrolls data that had been scheduled for last Friday, have also been delayed by the shutdown, muddying insight into the state of the economy. Benchmark 10-year notes were last down 2/32 in price to yield 2.64 percent, up from 2.63 percent late on Monday. The yields have struggled to break below resistance at around 2.60 percent. One-month Treasury bill yields jumped to 0.36 percent in secondary trading, the highest since February 2009. One-month bill yields are approaching those of two-year debt , which pay 0.39 percent. With little clarity coming from Washington, many investors will be looking for clues over central bank policy on Wednesday when the Federal Reserve will release minutes from its policy meeting last month, when it shocked markets by deciding not to begin reducing its $85 billion a month bond-purchase program. Traders will look for clues on what made the bank decide against tapering and how close the decision was. The Fed bought $1.46 billion in bonds due 2038 and 2043 on Tuesday as part of its ongoing bond purchases.