April 2, 2013 / 8:31 PM / 4 years ago

TREASURIES-Prices slip as investors move to riskier assets

* Market awaits U.S. payrolls report on Friday
    * Solid U.S. job growth seen, but Fed expected to hold
steady
    * S&P 500 index within striking distance of record


    By Luciana Lopez
    NEW YORK, April 2 (Reuters) - U.S. Treasury debt prices fell
on Tuesday as investors scooped up riskier assets such as stocks
instead of safe-haven government debt ahead of jobs data later
in the week.
    The S&P 500 stock index closed within striking
distance of its all-time intraday high of 1,576.09, with the
influential U.S. non-farm payrolls report for March due Friday.
 
    While analysts in a Reuters poll see 200,000 jobs added, the
unemployment rate is expected to hold steady at 7.7 percent -
far enough from the Fed's desired 6.5 percent goal that
policymakers are unlikely to change their accommodative stance.
    "It's a risk-on move, and we can see that in the equity
market gains and in the continued desire to invest in corporate
credit and high-yield bonds," Matthew Duch, portfolio manager at
Calvert Investment Management, Inc. in Bethesda, Maryland, said
of Tuesday's price moves.
    Benchmark 10-year Treasury notes dropped 8/32 in
price, pushing yields up to 1.862 percent from 1.835 percent on
Monday.
    But even if the jobs data is stronger than expected, yields
are unlikely to push above 2 percent, said Robert Tipp, chief
investment strategist at Prudential Fixed Income in Newark, New
Jersey.
    "I don't think there's that much scope for U.S. rates to
rise," he said. 
    When yields hit 2 percent earlier this year, he said, "they
were really sticking out as cheap, particularly in the
international context."
    International worries, in fact, have helped underpin the bid
for bonds' safety. With the chaotic bailout for Cyprus leaving
investors rattled recently and still-high unemployment rates in
the euro zone, U.S. Treasuries prices have remained range bound
in recent weeks, even as U.S. economic data suggests a gathering
recovery. 
    Among improving U.S. indicators are job market data. Markets
will get a first look at the labor situation for March with the
release on Wednesday of data on private-sector hiring by
payrolls processor ADP.
    Still, the U.S. Federal Reserve is likely to continue its
easy monetary policy as the scenario abroad stays worrisome,
analysts say.
    The Federal Reserve is now buying $85 billion of
mortgage-backed securities and U.S. government debt per month. 
    That policy is supportive for U.S. debt, but even more
bullish for the riskier assets like stocks, Duch said.
    "The expectation is for the unemployment rate to be steady
or fall slowly over time," Duch said. "We're not going to see
any dramatic surprises that will cause the Fed to tone down what
it's doing right now because it's more about the trend as a
whole. Even as the U.S. economy improves, the Fed is worried
about overseas events affecting our situation here."
    Nevertheless, the Fed could reduce its bond-buying program
before the end of the year if economic growth continues to pick
up and employment improves further, Dennis Lockhart, president
of the Atlanta Fed, said on Tuesday. 
    The Fed on Tuesday bought $1.575 billion in Treasury coupons
maturing between February 2036 and February 2043.

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