February 5, 2014 / 4:20 PM / 4 years ago

TREASURIES-Yields up on payrolls speculation, T-bills hurt by debt ceiling

* Yields rise as ADP close to expectations
    * Fed buys TIPS, to buy notes in two operations
    * One-month T-bill yields rise on debt ceiling fears

    By Karen Brettell
    NEW YORK, Feb 5 (Reuters) - U.S. Treasuries yields rose on
Wednesday as investors bet that Friday's highly anticipated
payrolls number will come in relatively strong, after an
employment report on Wednesday was near analysts' expectations.
    U.S. private employers added 175,000 jobs in January, the
ADP National Employment Report showed on Wednesday.
    Economists surveyed by Reuters expect that Friday's jobs
data will show that employers added 185,000 jobs in January.
    "There is a bit of pent up selling pressure, there has been
nothing but rallies over the last few weeks and I think this is
the result of people looking forward to non-farm payrolls," said
Aaron Kohli, an interest rate strategist at BNP Paribas in New
York, adding that "rates have baked in a lot of negativity."
    Benchmark 10-year Treasuries yields were last
2.65 percent, after falling from more than 3 percent at the
beginning of the year as investors flee emerging market assets
and stocks tumble, increasing the safe-haven demand for U.S.
government debt.
    The 10-year notes have struggled to stay below yields of
2.60 percent, however, as investors that expect yields could
rise on stronger economic momentum are reticent to buy at the
lower yields.
    "I think that most participants are looking for a stronger
number, mainly so they can buy at higher yields," said Thomas di
Galoma, co-head of fixed-income rates at ED&F Man Capital in New
    Weakening economic data has increased speculation that the
Federal Reserve may slow or cease reductions in its bond
purchase program if the economy worsens, though many see data as
needing to weaken considerably from current levels to alter the
Fed's plans.
    The Fed last week cut its monthly bond purchases by $10
billion, to $65 billion. It bought $0.97 billion in Treasuries
Inflation-Protected Securities (TIPS) due from 2040 to 2043 on
Wednesday as part of its ongoing purchase program and will buy
between $2.50 billion and $3.0 billion in Treasury notes due
2019 to 2021 later on Wednesday in a separate operation. 
    Treasuries bill yields, meanwhile, continued to rise on
Wednesday as investors were wary of buying debt that is exposed
to default as the U.S. bumps up again against its debt ceiling.
    Washington is due to reinstate a limit on its borrowing at
the end of this week and Treasury Secretary Jack Lew said the
administration could use accounting measures to stay under the
new cap until the end of February.
    Yields on the on-the-run one-month Treasuries bills that
come due on March 6 rose to 13 basis points on
Tuesday, the highest since October, when the debt ceiling was
last an issue.
    The U.S. Treasury also said on Wednesday it will sell $70
billion in new coupon-bearing debt next week, but that it may
cut auctions sizes at its next quarterly refunding because of a
faster-than-expected narrowing of the nation's budget deficit.
    Next week's sales will include $30 billion in three-year
notes, $24 billion in 10-year notes and $16 billion in 30-year
bonds. The Treasury added that reopening sized for future
auctions of the government's new two-year floating rate notes
are likely to be between $12 billion and $15 billion.
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