* Stock losses, weak Spanish debt auction enhance safety bid
* Higher yields after Tuesday's abrupt selloff draw buyers
* Parsimonious Fed minutes, ECB statement hurt risk assets
* Market will shift focus to U.S. non-farm payrolls report
By Chris Reese
NEW YORK, April 4 U.S. Treasuries rallied on
Wednesday as stock market losses and the prior session's bond
selloff, the largest in three weeks, drew buyers for safe-haven
U.S. government debt.
Treasuries prices fell on Tuesday when minutes from the
Federal Reserve's last meeting showed policymakers less eager to
add more monetary stimulus as the U.S. economy improves.
That sense of restraint was also evident in Europe on
Wednesday as central bankers resisted German pressure to signal
an exit from recent accommodation, but effected no new stimulus
despite downside risks to the economic outlook.
But jitters about a potential flare-up in the euro zone debt
crisis after a weak Spanish debt auction made spreads widen
between the debt of Spain and Italy and safe-haven German bunds,
and also enhanced the bid for safe-haven Treasuries.
"Yesterday there was a knee-jerk reaction to the minutes,
and now we are seeing a bit of a correction to the
over-reaction," said Jim Kochan, chief fixed income strategist
at Wells Fargo Funds Management in Menomonee Falls, Wisconsin,
adding "equity markets are retreating and that provides a
counter-bid to the Treasuries market."
"This fits the pattern of bad news in Europe generally
produces rallies in Treasuries," Kochan said.
With major Wall Street stock indexes
down more than 0.75 percent, a safe-haven bid helped drive
benchmark 10-year Treasury notes up 21/32, letting
their yields ease to 2.23 percent from 2.31 percent on Tuesday.
The 30-year Treasury bond rose 1-13/32, its
yield easing to 3.38 percent from 3.44 percent on Tuesday.
"The central banks didn't provide any help and the European
story is looking a little bit worse, hence the selloff in stocks
and the rally in bonds," said Rob Robis, head of fixed income
macro strategies at ING Investment Management in Atlanta,
The bond rally was also "just a little bit of a payback for
yesterday's move down which was quite abrupt," he said.
The market's next focus will be the U.S. non-farm payrolls
figures due on Friday, because investors want to see how the
data could feed into the Fed's policy calculations.
"The employment figures are key to the Fed's next move,"
said Kathy Jones, vice president and fixed income strategist at
Schwab Center for Financial Research in New York. "If job growth
accelerates, then there is little reason to consider more
The median of forecasts from analysts polled by Reuters is
for U.S. employers to have added 203,000 jobs in March, down
from 227,000 new jobs in February.
Jones said one issue the Fed is watching is whether warm
weather means employment growth reported in recent months has
been skewed to the upside by seasonal adjustments. The next few
months' data could shed some light on that point, she said.
Jones said going into Friday's employment report, traders
would want to be positioned defensively and not have long
positions in longer-term bonds due to concern about the impact
of a stronger-than-expected report.
But Robis said the performance of markets in riskier assets
and, conversely, that of safe-haven U.S. debt, was still closely
tied to Fed monetary accommodation.
"Despite some of the better economic performance we've seen
in the U.S., markets still rely on Federal Reserve liquidity so
any sign there will not be new liquidity from the Fed or the ECB
is taken as a negative by equity markets and other risky
assets," he said. "This shows the situation is still fragile and
that's why Treasuries won't sell off for a sustained period."