January 3, 2013 / 8:01 PM / 5 years ago

TREASURIES-Prices drop as Fed sees growing doubts on bond buying

* Fed to keep buying bonds, but doubts inside bank growing
    * ADP Dec private employment rises by more than expected
    * Price losses limited by worries over coming political

    By Luciana Lopez and Chris Reese
    NEW YORK, Jan 3 (Reuters) - U.S. Treasury debt prices sank
on Thursday after the Federal Reserve said doubts were growing
within the bank over its bond-buying program, as
stronger-than-expected jobs data boosted hopes for employment
figures later in the week.
   While the Fed said that it would keep buying bonds to boost
the economy over coming months, December meeting minutes
underscored a growing reticence about more increases to the
central bank's $2.9 trillion balance sheet. 
   "Several (officials) thought that it would probably be
appropriate to slow or to stop purchases well before the end of
2013, citing concerns about financial stability or the size of
the balance sheet," the minutes said. 
    Ten- and 30-year U.S. government debt sold off sharply after
the document was released.
    "I think the bottom line is that the policy is likely to be
in place for a while, but the minutes seems to be raising some
doubts about the commitment to the policy," said Julia Coronado,
chief North America economist at BNP Paribas in New York.
    "This is going to be an ongoing issue for the Fed," she
added. "We're in uncharted waters."
    Prices for 10-year debt were down 21/32 after
the minutes to yield 1.908 percent from 1.84 percent late on
Wednesday and spiked to their highest since May.
    Prices for 30-year debt traded 1-10/32 lower
after the minutes to yield 3.110 percent from 3.04 percent late
on Wednesday.
    Those losses added to a slide earlier in the day after the
ADP Employment Report 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.
    Investors' eyes are now on Friday's non-farm payrolls
report. Analysts surveyed by Reuters expect an increase of
    Treasuries had already sold off earlier this week 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. 
    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 sold shorter-dated Treasuries and bought longer-dated
debt, expired at year-end. 
    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."
    Analysts also 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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