* U.S. begins Nov. refunding with 3-year note sale
* Benchmark yields hit highest levels since mid-Sept.
* Fed purchases $1.565 billion in long-dated Treasuries
By Richard Leong
NEW YORK, Nov 12 U.S. Treasuries prices fell on
Tuesday as investors made room for this week's government debt
supply in the aftermath of a surprisingly strong reading on job
growth in October.
Bond yields earlier rose to their highest level since
mid-September but were still lower than a month ago.
It is unclear whether the higher yield levels will bolster
bidding at this week's November refunding, in which the Treasury
Department will sell $70 billion in debt.
"We have had a nice pickup in yield concession, but there is
some supply congestion at the front end of the curve," said
David Keeble, global head of interest rates strategy at Credit
Agricole Corporate & Investment Bank in New York.
Keeble noted some $100 billion in Treasury bills are slated
for sale on Tuesday and Wednesday, which might complicate
bidding for the new three-year note issue.
The last refunding of 2013 will begin with the auction of
three-year notes at 1 p.m. (1800 GMT), followed
by a $24 billion sale of 10-year debt on
Wednesday and a $16 billion auction of 30-year bonds on Thursday
Last month's 204,000 payroll gain, which easily beat
estimates that had expected a big toll from the 16-day federal
government shutdown, supported the view of a stronger economy
that bolsters the case for higher stock prices in the coming
months, said James Swanson, chief investment strategist at MFS
Investment Management in Boston.
"The bond market is not a place to make money. It's a place
to diversify," Swanson said.
Wall Street stock prices fell after hitting record highs on
Friday. The Dow on Monday finished at a record closing high.
The upbeat hiring news kindled speculation about the chances
the Federal Reserve might start to shrink its $85 billion in
monthly bond purchases at its December policy meeting rather
than early 2014.
Still, the jobs report contained enough worrisome data about
labor conditions that some economists reckon the central bank
will refrain from scaling back its third round of quantitative
easing, which was implemented a year ago with the goal to
In the meantime, the Fed bought $1.565 billion in Treasuries
that mature from February 2036 to February 2043, part of its
latest QE3 purchase.
Overnight trading volume was heavier than usual after the
U.S. bond market was closed on Monday for the Veterans Day
holiday. About $50 billion of Treasuries changed hands in the
cash market as of 8 a.m. (1300 GMT), 34 percent above the 20-day
average, according to ICAP, the biggest interbroker dealer of
U.S. government debt.
On the open market, three-year notes were down
3/32 in price, yielding 0.622 percent, up 3 basis points from
late on Friday. Benchmark 10-year Treasury notes
slipped 8/32 in price to yield 2.778 percent, up 3 basis points
from late on Friday.
In "when issued" activity, traders expected the upcoming new
three-year note issue to yield 0.650 percent,
below the 0.710 percent at the three-year auction in October.
Given the lack of major economic data this week, some
analysts pointed to a Senate panel's nomination hearing on Fed
Vice Chair Janet Yellen to succeed Ben Bernanke as Fed chairman
as a likely market-moving event. Yellen is widely seen
continuing the Fed's current ultra-loose monetary policy and is
an architect of its bond-purchase programs.
Traders are keen for any clues at Yellen's appearance on
whether she might signal the Fed is considering sticking with
its current pace of bond purchases into the latter half of 2014,
Credit Agricole's Keeble said.
"She's gotten a very dovish reputation, but I think she's
quite pragmatic," said Jack Flaherty, a portfolio manager for
the GAM Unconstrained Bond Strategy in New York.