January 14, 2014 / 8:06 PM / in 4 years

TREASURIES-Yields climb as hawkish Fed speakers favor tapering

* Short-covering since employment report seen as completed
    * Prices dip as retail sales point to stronger U.S. economy
    * Fed buys $1.39 bln bonds due 2038-23
    * Treasury sells $15 bln four-week notes at zero yields

    By Karen Brettell
    NEW YORK, Jan 14 (Reuters) - U.S. Treasury yields rose on
Tuesday as two Federal Reserve officials said they support
further cuts to the U.S. central bank's bond purchase program,
despite Friday's weaker-then-expected employment report.
    Charles Plosser, president of the Philadelphia Fed, and
Dallas Fed chief Richard Fisher, who spoke separately on
Tuesday, are both considered policy hawks.
    Plosser downplayed the payrolls report and said he would
prefer a quicker-than-planned withdrawal of policy stimulus.
    Fisher said the Fed should pare its bond buying as quickly
as possible, even if doing so sends stock prices tumbling,
because more bond buying risks inflation and makes an eventual
exit from easy policies more difficult. [ID: nN9N0AR023]
    Five-year notes, which are among the most sensitive to Fed
interest rate policy, were among the worst performers, and
benchmark 10-year notes retraced all of Monday's gains.
    The selloff came after a two-day rally, which was caused in
large part by investors who on expectations of strong jobs
numbers had taken short positions heading into Friday's payrolls
report and then had to cover those trades.
    "Plosser and Fisher, both noted hawks, reiterated their view
of QE and the economy," said Jason Rogan, managing director in
Treasuries trading at Guggenheim Partners in New York. At the
same time, the selloff is "a retracement of a really good
short-cover rally after Friday's number that continued into
yesterday. Most of the shorts were pushed out and forced to
    Five-year notes were last down 8/32 in price to
yield 1.652 percent, up from 1.589 percent late on Monday. The
10-year notes fell 11/32 in price to yield 2.875
percent, after holding levels of around 2.82 percent overnight,
where there is strong technical resistance.
    Investors raised their holdings of longer-dated Treasuries
after the jobs data, according to a survey released on Tuesday
by J.P. Morgan Securities.
    The share of investors who on Monday said their holdings of
longer-dated U.S. government debt were greater than their
holdings of portfolio benchmarks rose to 19 percent from 13
percent a week earlier, J.P. Morgan said. 
    Friday's employment report also caused some investors to
reevaluate growth expectations for this year, which had been
getting more bullish.
    The Fed bought $1.39 billion in bonds due between 2038 and
2043 on Tuesday as part of its ongoing purchase program.
 It will purchase between $4 billion and $5
billion in notes due 2018 and 2019 on Wednesday.
    Solid retail sales data on Tuesday also eased some concerns
about economic growth, with many saying that the employment
figure was likely an aberration hurt by factors such as bad
    "I don't think a lot has changed here, I think Friday's
number was an outlier," said Charles Comiskey, head of
Treasuries trading at Bank of Nova Scotia in New York.
    The Commerce Department said on Tuesday that U.S. retail
sales, excluding automobiles, gasoline, building materials and
food services, increased 0.7 percent last month after a 0.2
percent rise in November. 
    Producer price data on Wednesday and consumer price data on
Thursday will next be closely watched for signs that inflation
is picking up, something that many expect but so far has failed
to materialize.
    The Fed will also release its Beige Book report on
Wednesday, a collection of anecdotes from the central bank's
business contacts across the nation, which will be watched for
signs of economic strength.
    The Treasury sold $15 billion in four-week bills on Tuesday
at zero yields as it cuts issuance heading into Feb. 7, when the
debt ceiling will be reinstated.
    Some dealers in the interdealer market have been offering
negative bill rates to offset short positions in the repurchase
agreement market that can be costly as supply dwindles.
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