TREASURIES-U.S. bond prices rise, add to post-payrolls gains

Mon Apr 7, 2014 10:20am EDT

Related Topics

* Weaker Wall Street shares underpin bids for U.S. bonds

* U.S. to sell $64 bln in coupon-bearing debt this week

* Fed to buy $900 mln to $1.15 bln in long-dated bonds

* Fed's Bullard, Evans to speak later Monday

By Richard Leong

NEW YORK, April 7 (Reuters) - U.S. Treasuries prices rose on Monday, extending last week's gains as traders reduced bets the Federal Reserve might increase policy rates in the first half of 2015 after a March jobs report that missed some traders' expectations.

A selloff in Wall Street shares also supported demand for U.S. government debt.

Government debt prices jumped with yields falling to their lowest in a week on Friday after the government reported a gain of 192,000 nonfarm payroll jobs in March, which was solid but fewer than what some traders had feared.

They had thought a figure of more than 200,000 would cause Fed policy-makers to consider an earlier-than-expected schedule to raise short-term interest rates to prevent the economy from overheating.

"After this latest payrolls number, people reached the conclusion they were too ambitious with the Fed's first rate hike," said Mike Lorizio, head of Treasuries trading at John Hancock Asset Management in Boston.

Benchmark 10-year Treasuries were up 6/32 in price to yield 2.706 percent, down 2 basis points from late on Friday, while the five-year note was 4/32 higher, yielding 1.673 percent, down 3 basis points from Friday.

The three major U.S. stock indexes opened lower with the Standard & Poor's 500 index last down 0.2 percent.

Short-term interest rates futures implied traders scaled back their expectations on a Fed rate hike in April 2015 to 39 percent early Monday from 50 percent before the March payrolls report, according to CME's FedWatch, which calculates traders' view on changes in Fed's rate policy.

On the other hand, more Wall Street economists see a likelihood the Fed might tighten monetary policy in the first half of next year as evidence builds the economy has regained some of the momentum lost during a harsh winter, according to a Reuters survey conducted on Friday.

Friday's market rally was led by medium-term Treasuries with the five-year yield posting its biggest drop since late January as some traders closed out bets that yields would rise further on a hefty March payroll reading.

"Short-covering was what happened on Friday. The belly was oversold," Lorizio said.

Renewed interest in Treasuries should bode well for this week's upcoming supply, analysts said.

The U.S. Treasury Department will sell a total of $64 billion in coupon-bearing securities this week. The supply will start with a $30 billion auction of three-year notes on Tuesday, followed by a $21 billion reopening of a prior 10-year issue on Wednesday and a $13 billion auction of a previous 30-year bond on Thursday.

Meanwhile, the U.S. Fed will buy $900 million to $1.15 billion in long-dated bonds due in 2036 to 2044, part of its $30 billon intended purchases of Treasuries in April.

Two senior U.S. policymakers, who are not voting members of the Federal Open Market Committee, will speak later Monday.

St. Louis Fed President James Bullard will speak about the economy at an event in Los Angeles scheduled at 11:45 a.m. (1545 GMT), while Chicago Fed chief Charles Sevens will give opening remarks at an event in Chicago at noon (1600 GMT). (Reporting by Richard Leong; Editing by Nick Zieminski)

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