* Yields increase, 10-year notes back above 2.6 percent
* Fed to buy $2.25 bln - $2.75 bln notes due 2021-2023
* March T-bill yields rise as debt ceiling concerns return
By Karen Brettell
NEW YORK, Feb 4 U.S. Treasuries yields rose from
three-month lows on Tuesday as stocks recovered, reducing the
safe-haven demand for Treasuries, and as investors grappled with
whether disappointing economic data will extend into Friday's
highly anticipated jobs report.
A report showing U.S. factory activity was weaker than
expected on Monday sent equity markets reeling, and adding to an
already dramatic selloff caused by volatility from investors
fleeing emerging market assets.
A light economic calendar on Tuesday helped stabilize the
markets, sending Treasuries yields back higher on reduced
"There is a reversal in equities and some other risk assets,
which have been fueling the (bond ) rallystocks got a little
bounce and Treasuries are following," said Michael Cloherty,
head of U.S. rates strategy at RBC Capital Markets in New York.
Benchmark 10-year notes were last down 12/32 in
price to yield 2.63 percent, up from 2.58 percent late Monday.
The yields have fallen from over 3 percent at the beginning of
Investors were concerned about whether continuing bad
weather could upset Friday's jobs report for January, after
harsh weather was blamed for recent economic weakness, including
job gains that were well below expectations in December.
Employers are expected to have added 185,000 jobs in
January, according to the median estimate of 101 economists
polled by Reuters.
Many investors are taking a more cautious stance than
analysts' projections, though only a very pessimistic number is
seen as likely to sway the Federal Reserve from continuing to
reduce the size of its month bond purchases.
The Fed last week cut its monthly bond purchases by $10
billion, to $65 billion. The U.S. central bank is not due to
meet again until March, which will give it time to evaluate more
data before deciding if it should continue paring bond
The Fed will buy between $2.25 billion and $2.75 billion in
notes due 2021 to 2023 on Tuesday as part of its ongoing
Some dislocations were also seen in the Treasuries bills
market on Tuesday as investors again pulled back from certain
debt at risk of default if U.S. lawmakers are unable to increase
the country's debt ceiling.
U.S. Treasury Secretary Jack Lew said on Monday that the
government could start defaulting on the government's
obligations "very soon" after it runs out of room to borrow
under a legal cap on public debt.
Washington is due to reinstate a limit on its borrowing at
the end of this week and Lew said the administration could use
accounting measures to stay under the new cap until the end of
The government has been reducing its short-term debt
issuance heading into next week's deadline, as it has faced
restrictions on selling debt that is not needed for immediate
expenses. Increased issuance of short-term debt after the
deadline may add pressure to the bills that are most at risk of
"We're seeing some dislocations in the bill curve with the
March bills trading cheap, I think we'll see much more acute
dislocations next week," said RBC's Cloherty.
The Treasury said on Monday it will auction $8 billion of
one-month Treasury bills on Tuesday, $2 billion less than the
previous week and the fewest since April 2008. Traders expect
those bills to sell at yields of 14 basis points,
according to trading in the "when-issued" market.
On-the-run one-month Treasuries bills that come due on
February 27 yielded 5 basis points on Tuesday, up
from half a basis point two weeks ago.