Bonds News

TREASURIES-Short-end yields fall on possible U.S. debt limit extension

    * U.S. ADP jobs report in September better than expected
    * U.S. yield curve flattens as long-end yields slip
    * McConnell offers debt ceiling extension

 (Recasts, updates yields, adds debt ceiling developments,
analyst comments)
    By Karen Pierog and Gertrude Chavez-Dreyfuss
    CHICAGO/NEW YORK, Oct 6 (Reuters) - Yields on the shortest
end of the U.S. Treasury curve tumbled on Wednesday after the
Senate's top Republican said his party would support an
extension of the federal debt ceiling into December, a move that
would avert a historic default later this month. 
    The one-month Treasury yield, which earlier hit a
session high of 0.1390%, was last at 0.0507%. 
    Yields on Treasury bills maturing around Oct. 18, the date
U.S. Treasury Secretary Janet Yellen has said the government
would run out of cash, leading to a default, have been sharply
elevated since last week.
    The offer by Senate Republican Leader Mitch McConnell would
ease fears of an imminent missed payment on Treasury securities,
which could have far-reaching consequences for global markets
and the U.S. economy.
    Republican lawmakers had been unwilling to help Democrats
suspend or increase the $28.4 trillion debt ceiling after a
two-year suspension expired in late July. 
    Andrew Richman, senior fixed income strategist at Sterling
Capital Management, said the short end of the curve has been
reacting to "the grinding of the politics" in Washington.
    "The pressure on the front end is relieved to find at least
there will be perhaps a short-term solution," he said.
     Meanwhile, longer-dated yields fell from more than
three-month peaks, taking a respite from a sharp rise in recent
sessions, although the rally lost some steam later in the
session as Wall Street stock indexes reversed course and moved
    The benchmark 10-year yield, which earlier hit a
session high of 1.573%, was last down 1 basis point at 1.5206%
after retreating from June highs along with yields on 20-year
 and 30-year bonds. 
    The fall in long-end rates flattened the yield curve, with
the spread between two-year and 10-year yields
narrowing to 122.51 basis points after rising to 127 basis
points, its widest since June.
    Richman said the long end of the curve was looking ahead to
U.S. Federal Reserve moves to raise interest rates and taper its
$120 billion in monthly bond purchases.
    "If the jobs numbers come in anywhere near expectations, I
believe (the Fed) will announce the tapering in November," he
said, referring to Friday's release of the government's
September employment data.
    Ahead of that data, an ADP report on Wednesday showed U.S.
private payrolls increased more than expected in September to
568,000 jobs. 
    A rise in Treasury yields after the report was short-lived
as buyers stepped in to take advantage of Treasuries' oversold
October 6 Wednesday 3:18PM New York / 1918 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.045        0.0456    0.005
 Six-month bills               0.06         0.0609    0.005
 Two-year note                 99-233/256   0.2955    0.008
 Three-year note               99-136/256   0.5359    0.014
 Five-year note                99-120/256   0.9845    0.007
 Seven-year note               99-148/256   1.3134    -0.002
 10-year note                  97-136/256   1.5206    -0.010
 20-year bond                  95-168/256   2.0165    -0.026
 30-year bond                  98-100/256   2.0725    -0.027
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        10.00         0.25    
 U.S. 3-year dollar swap        13.00         0.00    
 U.S. 5-year dollar swap         7.50         0.00    
 U.S. 10-year dollar swap        0.50        -0.25    
 U.S. 30-year dollar swap      -26.25         0.25    
 spread (Reporting by Gertrude Chavez-Dreyfuss in New York and Karen
Pierog in Chicago; Editing by Andrea Ricci)