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TREASURIES-U.S. Treasuries lower a day before payrolls report
November 1, 2012 / 3:20 PM / 5 years ago

TREASURIES-U.S. Treasuries lower a day before payrolls report

By Ellen Freilich
    NEW YORK, Nov 1 (Reuters) - U.S. Treasuries prices posted
small losses on Thursday a day before the influential monthly
U.S. payrolls report as risk markets gained at the expense of
safe-haven U.S. government debt.
    Trade was less than normal as workers struggled to get to
offices in the vast area along the eastern U.S. seaboard hit by
super-storm Sandy.
    U.S. stocks opened higher and China's stock markets rose 
after official and private China PMI manufacturing surveys for
October suggested China's economy is finally regaining traction.
    China's central bank also conducted its largest-ever net 
fund injection this week. The move signalled its intention to
keep money market conditions relatively loose and support
lending to the real economy before a once-in-a-decade political
transition, starting on Nov. 8 at the 18th Party Congress.
    "The main reason Treasuries were down is that the Chinese
central bank continues to inject record levels of liquidity into
the market and the China PMI was better than expected," said
Steven Van Order, fixed-income strategist at Calvert Investment
Management in Bethesda, Maryland.
    U.S. economic data released on Thursday did not disturb the
direction earlier. New claims for U.S. jobless benefits slipped
in the latest week and the ADP National Employment Report, a
private sector report on the labor market, said U.S. companies
added 158,000 new jobs in October.
    An industry group reported that U.S. consumer confidence
rose to its highest level in more than four years and the
Institute for Supply Management's manufacturing index read 51.7
in October, slightly above economists' consensus forecast.
    Deutsche Bank Securities strategist Alan Ruskin said the ISM
report showed "the worst has been seen for the time being in the
manufacturing sector with the nadir hit in the July-August
period" while Decision Economics senior economist Pierre Ellis
called the sector "precariously steady" and vulnerable "to any
new weakening in orders".l
    In mid-morning trade, the benchmark 10-year note 
was down 6/32, its yield up to 1.72 percent from 1.70 percent at
Wednesday's close.
    Combined with a lack of fresh news from Europe overnight,
the China news and the U.S. economic data added up to a little
pressure on Treasuries prices in thin trade, Van Order said.
    "The markets are functioning, but the depth is not near the
usual yet," Van Order said.
    The U.S. payrolls report will set the tone for the U.S.
Treasury market next week and likely for the month ahead so
prices should remain in a tight range at least until the report
is released on Friday morning, Van Order said.
    A much stronger-than-forecast payrolls report on Friday
could encourage some selling in Treasuries while a
weaker-than-forecast report would likely spur buying, traders
said.
    Traders also have their eye on upcoming supply next week
when the Treasury will sell $32 billion in three-year notes, $24
billion in 10-year notes, and $16 billion in 30-year bonds.
    Also in the offing are a potential backlog of municipal and
corporate debt issuance from issuers who have delayed offerings
because of the storm and may wait until after next week's
presidential election as well, Van Order said.
    "We could see some pent-up issuance in coming weeks," he
said.
    The 30-year bond slid 25/32, its yield rising to
2.89 percent from 2.86 percent on Wednesday.
    "Accounts are adding to steepening exposures," said Navigate
Advisors LLC managing director Tom di Galoma, referring to the
widening difference in yields between 10- and 30-year maturities
as some anticipate eventual economic growth that could foster
inflation in the longer term.

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