TREASURIES-U.S. bond prices rise as services data disappoints

Mon Jan 6, 2014 11:31am EST

Related Topics

* Fed restarts QE3 with planned $1.0 bln-$1.5 bln bond buys
    * U.S. ISM services index unexpectedly falls, factory orders
rise
    * Bond gains curbed by coming government, corporate supply
    * U.S. Senate seen confirming Yellen as Fed chair

    By Richard Leong
    NEW YORK, Jan 6 (Reuters) - U.S. Treasuries prices rose on
Monday after weaker-than-expected data on the U.S. services
sector raised hopes that the Federal Reserve would slow its
reduction of bond purchases, spurring bids for government debt. 
    U.S. yields retreated from their 2-1/2 year highs, but they
could resume their rise on further proof that the domestic labor
market is creating jobs at about a monthly clip of about
200,000, analysts said. If employers were to hire workers at
that pace in December, it would support the view that the Fed
will keep dialing back its third round of quantitative easing
this year.
    "We had a run of stronger-than-expected data in December
that pushed the 10-year yield above 3 percent. We are now seeing
some weaker data so we are seeing it falling below 3 percent,"
said Stan Shipley, bond strategist at ISI Group in New York.
    On Dec. 18, Fed policy-makers said the central bank will buy
$75 billion in Treasuries and mortgage-backed securities in
January - a reduction of $10 billion in its monthly purchases -
on evidence of an improving economy. 
    Last Friday, Fed Chairman Ben Bernanke gave an upbeat
outlook on the economy at an event in Philadelphia, but he
cautioned that the recovery "clearly remains incomplete."
 
    Monday's data supported Bernanke's view of the uneven
recovery. 
    The Institute for Supply Management said its index on
services unexpectedly fell in December, while the Commerce
Department said new orders for factory goods rebounded in
November following a drop in October. 
 
    "The number that matters is Friday's payrolls number,"
Shipley said.
    Economists polled by Reuters expected U.S. employers
probably added 197,000 jobs last month, compared with 203,000 in
November, while they forecast that the jobless rate held at a
five-year low of 7.0 percent.
    The benchmark 10-year U.S. Treasury note rose
8/32 in price to yield 2.965 percent, down 3 basis points from
late on Friday. The 30-year bond shot up 18/32 in
price to yield 3.898 percent, down 3 basis points from Friday. 
    The 10-year note's yield hit a near 2-1/2-year high of 3.041
percent last Thursday, while the 30-year bond's yield touched
4.001 percent a week ago, which was its highest intraday level
since early August 2011, according to Reuters data.
 
    The U.S. central bank restarted its QE3 program on Monday
after a hiatus during the Christmas and New Year holidays. The
Fed said it planned to buy $1.0 billion to $1.5 billion in bonds
due from February 2036 to November 2043.
    In other Fed developments, the U.S. Senate is expected to
confirm Janet Yellen to succeed Ben Bernanke as chair of the
central bank in a vote scheduled late Monday afternoon. If
confirmed, Yellen will be the first woman to serve as the Fed's
top official. 
    For Wall Street, Yellen's tenure as Fed chief would likely
support the notion that the Fed will stick with an aggressive
stimulus, which has kept interest rates low and stoked the
recovery in the housing and stock markets that were hammered
during the Great Recession. 
    As the Fed resumed its bond stimulus program, the Treasury
Department will sell $30 billion in three-year debt on Tuesday
 ; $21 billion in 10-year notes on Wednesday
 and $13 billion in 30-year bonds on Thursday
.
    Competing for investors' cash will be an expected heavy wave
of investment-grade corporate bonds, which analysts say should
rebound following a poor 2013.
    Bond dealers forecast that companies plan to sell $90
billion to $100 billion in high-grade debt in January, according
to IFR, a unit of Thomson Reuters.
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