December 3, 2008 / 5:16 PM / 11 years ago

TREASURIES-Bonds drop in pullback from recent rally

* Bonds pull back in break from recent rocketing prices

* Higher stocks sap safe-haven bid for bonds

* Benchmark yields bounce off 50-year lows

* For the latest market news, please click on FINEWS (Adds strategist’s quote, updates prices)

By Chris Reese

NEW YORK, Dec 3 (Reuters) - U.S. Treasuries prices fell on Wednesday as investors pulled back from a recent surge in prices that pushed yields down to the lowest in more than 50 years, while stocks’ gains eroded safe-haven bidding.

Losses were somewhat limited by data showing a larger-than-expected contraction in private-sector payrolls in November and a record low reading of U.S. services activity — all of which would normally ignite the safe-haven bid for government debt.

“The market is taking a bit of a breather. On the fundamentals, it is getting harder to justify (higher prices),” said Carl Lantz, interest-rate strategist at Credit Suisse in New York.

The benchmark 10-year U.S. Treasury note US10YT=RR slid 9/32 in price for a yield of 2.73 percent, up from 2.70 percent late on Tuesday. Benchmark yields, which move inversely to prices, on Monday fell as low as 2.65 percent, the lowest in over five decades.

The two-year Treasury note US2YT=RR declined 3/32 in price for a yield of just 0.95 percent, up from 0.90 percent late on Tuesday, but still below the Federal Reserve’s target rate for overnight lending between banks of 1 percent.

“The higher stock market certainly doesn’t help bonds much,” said James Caron, co-head of global rates research at Morgan Stanley in New York.

A measure of the vast U.S. service sector slumped further than expected to a record low of 37.3 in November, according to the Institute for Supply Management, from 44.4 in October. A reading of 50 separates expansion from contraction.

Economists expected a reading of 42.0, according to the median of forecasts in a Reuters poll.

“The severe damage to the service industry is another indication of the extraordinary force of this recession,” said Pierre Ellis, senior economist at Decision Economics in New York.

ADP Employer Services said on Wednesday that U.S. private-sector employers cut 250,000 jobs in November, marking the most in seven years. ADP also revised the number of jobs cut in October to 179,000 from the originally reported loss of 157,000. For details see [ID:nN03311018].

Traders said the ADP data reinforced expectations of a large contraction in November non-farm payrolls, to be released on Friday. The median of forecasts from economists polled by Reuters is for non-farm payrolls to have fallen by 320,000 last month after shrinking by 240,000 in October.

The five-year Treasury note US5YT=RR dropped 8/32 in price for a yield of 1.71 percent, down from 1.66 percent late on Tuesday.

The 30-year bond US30YT=RR sank 1-9/32 in price, driving its yield up to 3.25 percent from late Tuesday’s 3.19 percent. (Additional reporting by Ellen Freilich; Editing by Jan Paschal)

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