* May ADP employment weaker than forecast
* ADP report points to continued Fed purchases
* ISM non-manufacturing index forecast at 53.5 due 10 a.m.
* Focus shifts to Friday's U.S. employment data
By Ellen Freilich
NEW YORK, June 5 U.S. Treasuries prices rose on
Wednesday after a weaker-than-expected private sector employment
report pointed to the Federal Reserve providing continued
support for the economy and financial markets.
The benchmark 10-year Treasury note, up 5/32 of
a point before the report, was up 12/32 afterwards, leaving its
yield at 2.11 percent, down from 2.15 percent late on Tuesday.
"The weak ADP number this morning is not keeping pace with
the Fed's hope that they will get unemployment under 6.5 percent
anytime soon and has the bears covering Treasury shorts," said
Tom di Galoma, head of fixed-income sales at E D & F Man
Capital. "The ADP figures could cause the economists on the
Street to lower their U.S. non-farm payroll growth estimates
before the Labor Department releases its report on Friday."
Recent days had seen a spike in bond "shorts," or bets that
Treasury bond prices will fall further, analysts said.
Shorts, especially against the 10-year issues, had
increased, making it more expensive for traders to borrow
Treasuries in the repurchase agreement, or repo, market.
Payrolls processor ADP said U.S. private employers added
135,000 jobs in May. Economists surveyed by Reuters had forecast
the ADP National Employment Report would show a gain of 165,000
Stone & McCarthy Research Associates economist Ray Stone
said, however, he was "disinclined" to alter his firm's 200,000
private sector payroll forecast.
"We envision some upside risk (to Friday's payrolls report)
stemming from the five-week interval between the April and May
surveys, as well as the likely reversal of April weather-related
weakness in Wisconsin," Stone said.
Investors saw the data as an argument for the Fed to
maintain its accommodative monetary posture, which currently
includes $85 billion a month in purchases of Treasuries and
"Bad news is good news ... because it keeps the Fed
accommodative, buying bonds and (keeping) interest rates low,"
said Tim Ghriskey, chief investment officer of Solaris Group in
Bedford Hills, New York.
Fed policymakers want to see the unemployment rate around
6.5 percent from its current 7.5 percent, with a sustained run
of healthy jobs gains. They also want inflation to reach two
percent and it has been running substantially under that level.
A particularly strong Friday payrolls number could push
benchmark yields higher. But a poor figure could see yields
slip, perhaps even below 2 percent.
The government's May payrolls report on Friday could show
whether job growth is strong enough for the U.S. central bank to
consider tapering bond purchases.
Fed Chairman Ben Bernanke and other top Fed officials
suggested recently they could start paring bond buys as soon as
the Fed's next few meetings if the economy improves further.
Economists recently polled by Reuters forecast U.S.
employers likely added 170,000 jobs in May, while the jobless
rate was seen unchanged at 7.5 percent.
The Fed will hold its next policy meeting on June 18-19.
The 30-year bond was up 17/32 in price to yield
3.285 percent from 3.315 percent late on Tuesday.