* Bonds climb before FOMC meeting
* Fed expected to remain on bond-buying course
* ECB expected to cut rates
* U.S. payrolls report on Friday a focus: modest job growth
By Ellen Freilich
NEW YORK, April 30 (Reuters) - U.S. Treasuries advanced on
the prospect of further monetary accommodation on Tuesday as
investors focused on central bank meetings and highly
anticipated jobs data due late this week.
With the benchmark 10-year Treasury note yield just above
four-month lows, the Federal Reserve's policy-making committee
begins a two-day meeting that will end Wednesday with a
statement that some believe could sound relatively dovish in
response to recent, weaker economic data.
A fall in euro zone inflation to a three-year low of 1.2
percent in April and a rise in the unemployment rate to 12.1
percent in March has led investors to conclude the European
Central Bank will cut the main euro zone interest rate at its
monthly meeting by 25 basis points on Thursday to 0.50 percent
as the bloc's economy weakens further.
"Treasury prices are higher because it's looking more and
more likely that the European Central Bank will indeed cut its
main refinancing rate on Thursday while the Federal Reserve will
stand pat on Wednesday," said Brian J. Jacobsen, chief portfolio
strategist at Wells Fargo Funds Management in Menomonee Falls,
Wisconsin. "That makes Treasuries relatively more attractive
than euro-denominated debt."
On Friday the U.S. government announces non-farm payrolls
data for April, expected to show employers added 145,000 jobs,
according to the median estimate of economists polled by
Reuters. March's number came in below expectations, at 88,000.
A 0.3 percent rise in first-quarter U.S. employment costs
had no discernible market impact, but reinforced the
low-inflation landscape that makes it easier for authorities to
pursue accommodative monetary policies.
Treasuries trimmed their best gains after the
S&P/Case-Shiller composite index showed U.S. single-family home
prices posted their best annual rise since May 2006, climbing
1.2 percent on a seasonally adjusted basis compared to January
and topping forecasts for a 0.9 percent rise.
Treasuries prices added to gains after a measure of Midwest
manufacturing activity reflected contraction, contrary to
expectations for expansion. The Chicago Purchasing Management
index read 49.0 in April, below the consensus forecast of 52.5.
Of particular interest to the market ahead of Friday's key
U.S. employment report was a drop in the Chicago Purchasing
Management employment index to 48.7 in April from 55.1 in March.
But CRT Capital Group government bond strategist David Ader
said the market was paying "scant attention" to "side-show"
releases and was more focused on central bank decisions and
major economic data like the payrolls report.
The Institute for Supply Management (ISM) also releases its
manufacturing and non-manufacturing surveys on Wednesday and
Disappointing data including slower-than-expected U.S.
economic growth in the first quarter has led Treasuries yields
lower in the past few weeks, as investors again grapple with the
prospect that the economy will at best only muddle along this
year. In addition, over the past 12 months, inflation has risen
just 1 percent.
Ten-year Treasuries were up 7/32 in price to
yield 1.64 percent, near their lowest levels since December. The
yields have dropped from as high as 2.05 percent on March 8.
The Treasury will also announce its refunding plans for the
second quarter on Wednesday, which will be watched for any cuts
in its planned issuance as the government benefits from strong
The Treasury has been cutting sales of Treasury bills on the
better tax inflows, and as another fight over the debt ceiling
looms. The debt ceiling has been suspended until May 18, when
Republicans are expected to use the ceiling as a tool to push
for new spending cuts.
The Treasury on Monday said it will sell $30 billion in
four-week Treasuries bills on Tuesday, $10 billion less than the
last week and $5 billion less than most expected. This came on
top of $9 billion in cuts in this week's three-month, six-month
and 12-month bill auctions, which were announced last week.
The declining bill issuance has helped short-dated bill
yields drop and some think declining supply could also extend to
extra demand for coupon debt.
The Fed will buy between $4.25 billion and $5.25 billion in
notes due 2017 on Tuesday as part of its ongoing bond purchase
program. It purchased $1.52 billion in bonds due between 2036
and 2042 on Monday.