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TREASURIES-Prices ease for 2nd day after private jobs data
January 3, 2013 / 5:05 PM / 5 years ago

TREASURIES-Prices ease for 2nd day after private jobs data

* ADP Dec private employment rises by more than expected
    * Price losses limited by worries over coming political
battle
    * Fed buys about $5.1 bln of longer-dated Treasuries

    By Chris Reese
    NEW YORK, Jan 3 (Reuters) - U.S. Treasury debt prices eased
for a second session on Thursday, pushing yields to three-month
highs after data showed the private sector added more jobs than
expected in December, which undermined the safe-haven appeal of
U.S. government debt.
    Treasuries had already sold off sharply on Wednesday
following a U.S. government deal to avoid sharp tax hikes under
the so-called "fiscal cliff."
    Thursday's losses were limited, however, with few investors
willing to abandon lower-risk Treasury debt as U.S. political
battles loom in coming weeks over spending cuts and raising the
nation's debt ceiling.
    Still, ahead of Friday's December payrolls data from the
government, investors were focused on the ADP Employment Report,
which showed private-sector employers added 215,000 jobs in
December. Economists surveyed by Reuters had been looking for a
gain of 133,000 jobs. 
    "There's an undeniable improving trend in the employment
figures showing through in ADP and we've been seeing that in the
non-farm private payrolls as well. That's in keeping with the
overall picture of stable to improving growth that we saw as
2012 wound down," said Robert Tipp, chief investment strategist
at Prudential Fixed Income in Newark, New Jersey.
    Good news for the economy is bad news for bonds, and
benchmark 10-year Treasury notes traded 7/32 lower
in price, their yield rising to 1.86 percent from 1.84 percent
late on Wednesday.
    Benchmark yields traded as high as 1.87 percent on Thursday,
the highest since mid-September, surpassing yield peaks touched
on Wednesday on news the government had reached a last-minute
agreement to avert the "fiscal cliff" of tax hikes and spending
cuts that threatened to plunge the economy back into recession.
    President Barack Obama and congressional Republicans face
two more months of tough talks, however, on spending cuts and an
increase in the nation's debt limit as this week's hard-fought
deal covered only taxes and delayed decisions on expenditure
until March 1. 
    In the limited selling, one big buyer offered a bit of
support for Treasury debt prices. The Federal Reserve on
Thursday bought about $5.1 billion of Treasuries maturing in
2017 in its first stimulus operation of the year.
    The central bank's "Operation Twist" stimulus program, under
which it was selling shorter-dated Treasuries and buying
longer-dated debt, expired at the end of December. The Fed is
now buying about $40 billion per month of mortgage-backed
securities and $45 billion per month of longer-dated Treasuries
in an effort to prop up the economy. Some analysts have dubbed
the Fed purchase programs "QE4."
    The Fed buying added to expectations Treasury yields might
not have much room to rise over the short term, said George
Goncalves, head of U.S. interest rates strategy at Nomura
Securities International in New York.
    "Overall with ongoing political tension, non-stop Fed ...
buying in QE4 throughout 2013, and a turn toward weaker data,
U.S. Treasuries should be well supported in the weeks ahead and
we continue to recommend buying on dips," Goncalves said. 
    On the flip side, analysts said investors may be looking to
cheapen Treasuries heading into the sale of $66 billion of
government debt next week.
    The Treasury said on Thursday it will sell $32 billion of
three-year notes, $21 billion of reopened 10-year notes and $13
billion of reopened 30-year bonds on Tuesday, Wednesday and
Thursday respectively.

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