April 3, 2013 / 8:16 PM / in 5 years

TREASURIES-Prices rise as ADP data tempers job hopes

* Market awaits U.S. payrolls report on Friday
    * ADP private sector employment weaker than forecast
    * ISM non-manufacturing employment component slips

    By Luciana Lopez
    NEW YORK, April 3 (Reuters) - Prices for U.S. Treasuries
gained on Wednesday after tepid jobs and service sector data
dampened hopes for strong numbers from Friday's key labor market
report, driving investors to safe havens.
    Benchmark yields touched three-month lows after payroll
processor ADP reported that U.S. private-sector employers added
158,000 jobs in March, fewer than expected. Separately, the
Institute for Supply Management reported that growth in the U.S.
services sector slowed in March to the lowest level in seven
    "We are revising our forecast for March nonfarm payrolls
down 40,000 to 160,000," said Joseph LaVorgna, managing director
and chief U.S. economist at Deutsche Bank Securities.
    Such views were "bullish for bonds, which are testing the
low end of their recent yield range," said Jake Lowery, Treasury
trader at ING in Atlanta.
    The benchmark 10-year Treasury note, down 3/32
of a point before the data was released, was up 15/32 in the
late afternoon in New York, the yield easing to 1.811 percent.
    "We see a 1.73 percent to 2.07 percent range for 10-year
yields; slightly longer term, it looks like 2.15 percent to 1.73
percent," said William O'Donnell, head of U.S. Treasury strategy
at RBS Securities in Stamford, Connecticut. "Near-term
resistance is around 1.83 percent." 
    Analysts in a Reuters poll forecast a rise in nonfarm
payrolls of 200,000 for March.
    Now that expectations have eased in the wake of the ADP
data, a payrolls jump of 200,000 or more could prompt a drop in
bond prices.
    But the magnitude of a retreat might be relatively modest
since bond investors had leaned toward being short, based on the
strength of recent U.S. economic data, Lowery said. "The
magnitude of a setback could be less than what it would have
been had investors been positioned quite long."
    The medium- and long-term trend for the labor market will
also be important, said Steve Van Order, fixed income strategist
with Calvert Investments in Bethesda, Maryland.
    If the unemployment rate edges down toward 7.4 percent
before the Federal Reserve's year-end expectations - "then the
probability of QE being tapered goes up in the market," he said.
     The Federal Reserve is now buying $85 billion of
mortgage-backed securities and U.S. government debt per month.
Investors are trying to figure out when the Fed might pull back
on that aggressive easing.
    Policymakers have said they want to see the unemployment
rate, currently at 7.7 percent, closer to 6.5 percent.
    As part of its unconventional monetary easing, the Fed
bought $3.73 billion of Treasuries maturing between February
2019 and March 2020 on Wednesday.
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