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TREASURIES-Benchmark yields hit 8-month high on Fed wariness
January 3, 2013 / 9:26 PM / 5 years ago

TREASURIES-Benchmark yields hit 8-month high on Fed wariness

* Fed to keep buying bonds, but doubts inside bank growing
    * ADP Dec private employment rises more than expected
    * Price losses limited by worries over coming political
battle

    By Luciana Lopez and Chris Reese
    NEW YORK, Jan 3 (Reuters) - Yields on benchmark U.S.
government debt hit a near eight-month high on Thursday on signs
of growing doubts within the Federal Reserve on its bond-buying
program and after stronger-than-expected private jobs data
lifted hopes for Friday's labor figures.
    While the Fed said it would keep up its stimulus program in
place to boost the economy over coming months, minutes of its
December meeting underscored an increasing reticence about
further expanding the central bank's $2.9 trillion balance
sheet. 
    "Several (officials) thought that it would probably be
appropriate to slow or to stop purchases well before the end of
2013, citing concerns about financial stability or the size of
the balance sheet," the minutes said. 
    Ten- and 30-year U.S. government debt sold off sharply after
the document was released, with yields on the benchmark 10-year
note breaking through their range of the past five
months.
    "I think the bottom line is that the policy is likely to be
in place for a while, but the minutes seems to be raising some
doubts about the commitment to the policy," said Julia Coronado,
chief North America economist at BNP Paribas in New York.
    "This is going to be an ongoing issue for the Fed," she
added. "We're in uncharted waters."
    Prices for 10-year debt were down 20/32 after the minutes to
yield 1.904 percent, up from 1.84 percent late on Wednesday.
Yields spiked up as far as 1.91 percent, the highest since May.
    Yields on 10-year notes posted their biggest two-day rise
since Aug. 14-15, when concerns over continuing deterioration in
the euro zone eased following a pledge from European Central
Bank President Mario Draghi to do whatever it would take to
preserve the euro.
    Ten-year U.S. debt is considered a benchmark for a number of
borrowing instruments, including mortgage rates.
    Prices for 30-year debt traded 1-15/32 lower
after the minutes to yield 3.118 percent, from 3.04 percent late
on Wednesday, also touching an eight-month high
    Those losses added to a slide earlier in the day after the
ADP Employment Report showed private-sector employers added
215,000 jobs in December. Economists surveyed by Reuters had
been looking for a gain of 133,000 jobs. 
    "There's an undeniable improving trend in the employment
figures showing through in ADP and we've been seeing that in the
non-farm private payrolls as well. That's in keeping with the
overall picture of stable to improving growth that we saw as
2012 wound down," said Robert Tipp, chief investment strategist
at Prudential Fixed Income in Newark, New Jersey.
    Investors are focused on Friday's non-farm payrolls report.
Analysts surveyed by Reuters expect an increase of 150,000 jobs.
    Treasuries had sold off earlier this week on news the
government had reached a last-minute agreement to avert the
"fiscal cliff" of tax hikes and spending cuts that threatened to
plunge the economy back into recession.
    President Barack Obama and congressional Republicans,
however, face two more months of tough talks on spending cuts
and an increase in the nation's debt limit as this week's
hard-fought deal covered only taxes and delayed decisions on
expenditures until March 1. 
    One big buyer offered a bit of support for Treasury debt
prices. The Federal Reserve on Thursday bought about $5.1
billion of Treasuries maturing in 2017 in its first stimulus
operation of the year.
    The central bank's "Operation Twist" stimulus program, under
which it sold shorter-dated Treasuries and bought longer-dated
debt, expired at year-end. 
    The Fed is now buying about $40 billion per month of
mortgage-backed securities and $45 billion per month of
longer-dated Treasuries in an effort to prop up the economy.
Some analysts have dubbed the Fed purchase programs "QE4."
    Analysts also said investors may be looking to cheapen
Treasuries heading into the sale of $66 billion of government
debt next week.
    The Treasury said on Thursday it will sell $32 billion of
three-year notes, $21 billion of reopened 10-year notes and $13
billion of reopened 30-year bonds on Tuesday, Wednesday and
Thursday, respectively.

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