February 6, 2014 / 8:00 PM / in 4 years

REFILE-TREASURIES-Yields rise before payrolls, T-bill issuance jumps

* Yields rise on caution before Friday's payrolls report
    * Treasuries track bunds lower as ECB holds rates steady
    * Fed buys $1.25 bln bonds due 2040-2043
    * Treasury to sell $84 bln 3-, 6-mth bills, yields rise

    By Karen Brettell
    NEW YORK, Feb 6 (Reuters) - U.S. Treasuries yields rose on
Thursday to their highest in a week as investors positioned for
Friday's highly anticipated jobs report for January, which is
expected to show more robust growth than December's surprisingly
weak U.S. jobs gains.
    Treasuries yields tumbled in the past month as weakening
data raises concerns over the strength of the economic recovery
while fears over emerging market economies have also led
investors to flee their assets and buy safe haven U.S.
government bonds.
    But traders are cautious that yields could rise again if
jobs and other data rebounds from their recent weakness, keeping
the Federal Reserve on track to reduce the size of its monthly
bond purchases, and if volatility in emerging markets ebbs.
    "You're going to continue to see a battle between the EM
flight-to-quality concerns and the fact that the Fed, which has
been the biggest buyer of Treasuries and mortgages in the world,
are slowly but surely reducing what they are buying," said Jason
Rogan, managing director in Treasuries trading at Guggenheim
Partners in New York.
    Benchmark 10-year Treasuries yields were last
down 10/32 in price to yield 2.71 percent. The yields have
dropped from more than 3 percent at the beginning of the year
and traded as low as 2.57 percent on Monday, the lowest since
Nov. 1.
    Employers are expected to have added 185,000 jobs in the
month, according to the median estimate of 101 economists polled
by Reuters. Some traders are anticipating a slightly lower
number of jobs additions, of around 160,000 - 170,000.
    The number of Americans filing new claims for unemployment
benefits fell more than expected last week, in a boost to the
labor market outlook and the broader economy, data showed on
    Other data showed a weakening in exports in December, which
if it extends to January could see trade being a drag on growth
in the first quarter after it helped to buoy the economy in the
last three months of 2013. 
    The Fed last week cut its monthly bond purchases by $10
billion, to $65 billion and is expected to continue reducing the
size in $10 billion increments if the economy maintains moderate
    The U.S. central bank bought $1.25 billion in bonds due 2040
to 2043 on Thursday as part of its ongoing purchases. It will
purchase between $500 million and $750 million in debt due from
2024 to 2031 on Friday.
    Treasuries had weakened earlier in choppy trading after
European Central Bank President Mario Draghi gave no hint of
imminent monetary policy easing, tracking German government
    The ECB left interest rates unchanged on Thursday, as was
expected by economists, but put markets on alert for a possible
move in March, acknowledging that emerging-market turbulence
could hit the euro zone. 
    Treasury bill yields also jumped on Thursday after the
Treasury said it will sell $84 billion in new three-month and
six-month bills next week, much more than many had expected.
    The government has been reducing its short-term debt
issuance heading into the debt ceiling reinstatement on
Saturday, as it has faced restrictions on selling debt that is
not needed for immediate expenses. It has been expected to
increase supply after the deadline as it faces higher seasonal
needs for cash, including to pay tax refunds.
    But demand for some short-term debt may drop if lawmakers
delay raising the debt ceiling. Treasury Secretary Jack Lew has
said the administration could use accounting measures to stay
under the new cap until the end of February.
    "With the debt limit being reinstated on February 8, the
Treasury most likely wanted to avoid having to raise too much
cash later in the month," said Kenneth Silliman, head of
short-term rates trading at TD Securities in New York.
    "The Treasury most likely front-loaded a significant portion
of their issuance needs to stay in front of a volatile situation
which could ensue from a potential default should lawmakers once
again drag negotiations out to the eleventh hour. Money Market
investors are not willing to follow Washington to the brink,"
Silliman said.
    Next week's sales include $42 billion in 13-week bills and
$42 billion in 26-week bills, both on Monday. The U.S. will also
sell $50 billion in cash management bills on Monday.
    Yields on three-month bills rose as high as 8
basis points, the highest since December 31. Six-month bill
yields also increased to 8 basis points, the highest
since January 9.
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