February 3, 2014 / 8:00 PM / in 4 years

TREASURIES-Yields lowest since November on weak manufacturing data

* Ten-year yields fall below 2.60 pct, lowest since Nov. 1
    * Fed buys $1.25 bln bonds due 2038-2043
    * Fed on Tuesday to buy $2.25 bln-$2.75 bln notes

    By Karen Brettell
    NEW YORK, Feb 3 (Reuters) - U.S. Treasuries yields fell to
their lowest levels since the beginning of November on Monday
after a report showed that U.S. manufacturing grew at a
substantially slower pace in January. 
    New order growth plunged by the most in 33 years, driving
overall factory activity to an eight-month low, according to the
Institute of Supply Management's index. 
    The report drove Treasuries prices back into positive
territory after the bonds had weakened earlier on solid European
growth and some calming in emerging market assets.
    "Overall this is a weak number and it does suggest some
dramatic slowing in economic activity," said Millan Mulraine,
deputy head of U.S. research and strategy at TD Securities in
New York.
    "One can put most of this down to the unseasonably cold
weather that we've had over the past two months, we've seen that
in other economic reports. The big question is whether that
proves to be temporary, and we think that it will," he said.
    Continuing bad weather in the United States is threatening
also to upset Friday's highly anticipated jobs report for
January, after harsh weather was blamed for December's jobs
gains coming in well below expectations.
    Employers are expected to have added 185,000 jobs in
January, according to the median estimate of 101 economists
polled by Reuters. 
    The Federal Reserve is not due to meet again until March,
which will give it time to evaluate more data before deciding if
it should continue paring its bond purchases. Last week, in the
last policy meeting headed by Ben Bernanke, it cut its monthly
bond purchases by $10 billion, to $65 billion.
    Benchmark 10-year Treasuries yields have fallen by almost
half a percentage point since the beginning of the year as
economic data weakens. A rout in emerging market assets that
some blame on the Fed's paring bond purchases has also led
investors to seek out the safe-haven U.S. bonds.
    The Treasuries rally has been helped by purchases as
investors rebalance portfolios for month-end and by
short-covering by investors who had positioned for higher
    Some of that buying may now ebb as shorts are covered,
though it may depend if 10-year note yields are able to hold
below the 2.60 percent area, where there has been technical
    "This is kind of a wash-out of peoples positions, it
probably has been building over the course of the last month and
now we're getting capitulation," said Tom Tucci, head of
Treasuries trading at CIBC in New York.
    The 10-year note yields fell as low as 2.582
percent on Monday, the lowest since Nov. 1. They are down from
3.04 percent on Jan 1.
    The Fed will buy Treasuries every day this week as part of
its ongoing purchases, including two separate operations on
Wednesday. On Monday the Fed bought $1.25 billion in bonds due
2038 and 2043. On Tuesday, it will buy between $2.25 billion and
$2.75 billion in note due 2021 to 2023.
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