* Yields hold at higher levels after payrolls report
* Treasury to sell $72 billion in new 3-, 10-, 30-year debt
* Fed buys $3.31 billion of debt due 2020-2023
By Karen Brettell and Luciana Lopez
NEW YORK, May 6 Prices for U.S. Treasuries
slipped on Monday ahead of new supply later in the week, with
investors extending a sell-off after stronger-than-expected jobs
data on Friday.
Yields could stay high even as markets in Tokyo and London
return on Tuesday from holidays, with investors preparing for
$72 billion in debt sales starting on Tuesday.
"The volume is so light that you get the impression that no
one is interested in buying in front of supply at all," said Jim
Vogel, interest rate strategist at FTN Financial in Memphis,
Investors "are particularly not interested until they can
see what kind of reaction we get from all of overseas being open
tonight and tomorrow," he added.
Friday's jobs gains caught traders off guard, as most were
anticipating a gloomier jobs picture after other economic data r
pointed toward more sluggish growth.
"There was a significant amount of buying and short-covering
and capitulation around month-end and prior to that number, with
expectations having been lowered substantially going in," said
Dan Mulholland, managing director in Treasuries trading at BNY
Mellon in New York.
The positive jobs surprise, with employers adding 165,000
jobs in April and the U.S. jobless rate falling to 7.5 percent,
the lowest since December 2008, left traders scrambling to cover
long exposures and sent yields surging.
Benchmark 10-year Treasuries yielded 1.764
percent on Monday, up from 1.74 percent on Friday and up from
1.62 percent before the jobs data was released.
Thirty-year bonds yielded 2.979 percent on
Monday, up from 2.96 percent late on Friday and up from 2.82
percent before the jobs report.
Despite Friday's jobs gains, many economic analysts believe
that economic growth is still too slow and investors have pared
back expectations that the Federal Reserve may taper or end bond
purchases this year as inflation also slows.
That may hold yields down near historic lows for some time
Data last week showed that the Fed's preferred gauge of
consumer prices, the personal consumption index, slowed to 1.0
percent in March from 1.3 percent in February, the smallest gain
in three and a half years.
Market inflation expectations as measured by forward
contracts that show where traders think inflation will be in
five years, also a closely watched indicator for the Fed, have
also slipped. The contracts now show expectations of 2.77
percent, down from around 3 percent at the beginning of the
"It's possible that the Fed starts to focus on inflation as
a reason to extend QE, rather than unemployment," said Carl
Lantz, head of U.S. interest rate strategy at Credit Suisse in
The Federal Reserve said on Wednesday it may increase or
decrease bond purchases under its quantitative easing, or QE,
program from its current $85 billion per month, depending on the
strength of the economy and on inflation, Most analysts see the
Fed as more likely to keep buying for longer.
Before the recent slowdown in data, most economists had
expected the Fed would taper buying this year and end purchases
at the end of the year.
The Fed bought $3.31 billion in notes due 2020 to 2023 on
Monday as part of this program.
The relatively higher yields, meanwhile, are expected to
help the Treasury sell $32 billion in three-year notes on
Tuesday, $24 billion in 10-year notes on Wednesday and $16
billion in 30-year bonds on Thursday.
"May auctions are a particularly pivotal time historically
for the market," said Ian Lyngen, senior government bond
strategist at CRT Capital Group in Stamford, Connecticut.
"What tends to happen is in the wake of the May refunding,
the Treasury market shifts direction somewhat and we go into a
prolonged bullish phase."
While that's not "prescriptive" this year, considering the
gathering recovery in the world's biggest economy and still-low
yields, "we will argue that that does counter any bearish
momentum that we might otherwise have seen from firmer data,"