TREASURIES-Yields rise in choppy trading, T-bills hurt by debt ceiling

Wed Feb 5, 2014 9:53am EST

Related Topics

* Prices fall as ADP close to  expectations
    * Fed to buy TIPS, notes in two operations
    * One-month T-bill yields rise on debt ceiling fears

    By Karen Brettell
    NEW YORK, Feb 5 (Reuters) - U.S. Treasuries prices fell on
Wednesday, erasing some earlier gains in choppy trading, after
an employment report came in close to analysts' expectations,
giving few new clues as to the strength of Friday's highly
anticipated jobs report.
    U.S. private employers added 175,000 jobs in January, close
to analysts' expectations, the ADP National Employment Report
showed on Wednesday. 
    Economists surveyed by Reuters had forecast the ADP National
Employment Report would show a gain of 180,000 jobs, near the
185,000 jobs that Friday's non-farm payrolls report are expected
to have added in January. 
    "I think that most participants are looking for a stronger
number, mainly so they can buy at higher yields," said Thomas di
Galoma, co-head of fixed-income rates at ED&F Man Capital in New
York. "People are buying duration, buying out the curve because
they aren't getting the selloff they anticipated."
    Benchmark 10-year Treasuries yields have fallen
to 2.64 percent, from more than 3 percent at the beginning of
the year as investors flee emerging market assets and stocks
tumble, increasing the safety demand for U.S. government debt.
    The 10-year notes have struggled to stay below yields of
2.60 percent, however, as investors that expect yields could
rise on stronger economic momentum are reticent to buy at the
lower yields.
    Weakening economic data has increased speculation that the
Federal Reserve may slow or cease reductions in its bond
purchase program if the economy worsens, though many see data as
needing to moderate considerably from current levels to alter
the Fed's plans.
    The Fed last week cut its monthly bond purchases by $10
billion, to $65 billion. It will conduct two operations on
Wednesday, including purchasing between $0.85 billion and $1.15
billion in Treasuries Inflation-Protected Securities (TIPS) due
from 2018 to 2043, and between $2.5 billion and $3.0 billion in
Treasury notes due 2019 to 2021.
    Treasuries bill yields, meanwhile, continued to rise on
Wednesday as investors were wary of buying debt that is exposed
to default as the U.S. bumps up again against the debt ceiling.
    Washington is due to reinstate a limit on its borrowing at
the end of this week and Treasury Secretary Jack Lew said the
administration could use accounting measures to stay under the
new cap until the end of February.
    Yields On-the-run one-month Treasuries bills that come due
on Feb. 27 <US1MT=RR 4> rose to 13 basis points on Tuesday, the
highest since October, when the debt ceiling was last an issue,
and up from half a basis point two weeks ago.
    The U.S. Treasury also said on Wednesday it will sell $70
billion in new coupon-bearing debt next week, but that it may
cut auctions sizes at its next quarterly refunding.
    Next week's sales will include $30 billion in three-year
notes, $24 billion in 10-year notes and $16 billion in 30-year
bonds. The Treasury added that reopening sized for future
auctions of the government's new two-year floating rate notes
are likely to be between $12 billion and $15 billion.
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