TREASURIES-Yields rise on upbeat factory data, payrolls anxiety
* Yields rise before heavy week of economic data
* Strong factory data add to tapering speculation
* Investors nervous before Friday's payrolls report
* U.S. delays T-bill auctions due to test error
By Karen Brettell and Richard Leong
NEW YORK, Dec 2 (Reuters) - U.S. Treasuries yields rose on
Monday as investors took a cautious stance ahead of a heavy week
of data, culminating in Friday's key November employment
report, which will be scoured for signals about the Federal
Reserve's future decisions.
Stronger-than-expected manufacturing in the United States
and abroad spurred selling in U.S. government debt as some
traders reconsidered how soon the U.S. central bank might dial
back its bond purchases, currently at $85 billion a month, if
the economy grows further, albeit at a sub-par pace.
"The clock is ticking," said Eric Green, global head of
rates and currency research and strategy with TD Securities in
New York. "The sentiment is that we are closer to tapering than
further away."
Monday's yield rise followed a weak November for Treasuries
which recorded a 0.33 percent monthly loss as data showed U.S.
economic growth was not derailed by the 16-day government
shutdown in October, according to an index compiled by Barclays (Other OTC: BCLYF - news) .
The Fed is now seen by most as likely to begin reducing bond
purchases at its March meeting. Some think that could be brought
forward to January if domestic employers continue to add workers
at 200,000 a month as reported in October. Some are even
speculating that the Fed could move as soon as this month.
"The risk for the market is a strong number which will bring
the 'tapering talk' front and center," said Chris Harms,
portfolio manager and co-head of the Relative Return team at
Loomis (Other OTC: LOIMF - news) , Sayles & Co. in Boston.
Investors have often become anxious heading into a payrolls
report, seeing a risk that a large jobs number could be the
spark that starts the Fed pullback.
"It's all defense into Friday's number," said Tom Tucci,
head of Treasuries trading at CIBC in New York.
Tucci said it is more likely the U.S. central bank will
provide more guidance over how it plans to hold interest rates
low for some time. "I think what they want to do is outline a
plan, reinforce the lower (rates) for longer with the idea that
that's going to drive a foundation in the market that won't
allow rates to move up too dramatically," he said.
Benchmark 10-year notes were last down 17/32 in
price to yield 2.80 percent, up 6 basis points from late on
Friday. The 10-year yield was 2 basis points short of the
two-month high set more than a week ago.
Thirty-year bonds fell 29/32 in price to yield
3.860 percent, up 5 basis points from Friday.
Treasuries futures also experienced heavy selling with two
block trades of 10-year T-notes totaling 26,600 contracts,
according to data from the CME Group (Kuala Lumpur: 7018.KL - news) .
Treasuries prices fell in overseas trading in reaction to
unexpectedly encouraging data on factory activity in Britain and
the euro zone. Their decline accelerated following data from the
Institute for Supply Management that showed U.S. factory
activity hit a 2-1/2-year high in November, brightening the
economic outlook as the year winds down.
"This is all good news. Early in the expansion,
manufacturing was a star. Now it's picking up again with housing
slowing down," said David Berson, chief economist at Nationwide
Insurance in Columbus (Copenhagen: COLUM.CO - news) , Ohio.
On the supply front, the Fed bought $1.48 billion in bonds
due 2038 to 2043 on Monday as part of its ongoing purchase
program that is aimed at lowering unemployment and averting
deflation. It will purchase debt every day this week, including
two buybacks on Tuesday.
Expectations of heavy corporate debt issuance before the
year-end holiday period also weighed on Treasuries as dealers
and investors made way to absorb the new debt.
Bonds had been boosted through Friday by month-end buying by
portfolio managers to rebalance holdings against benchmark
indexes.
Separately, the Treasury Department said it postponed the
sales of $32 billion in three-month bills and $27 billion in
six-month bills to Tuesday from Monday due to an error that
occurred during a test of its auction system.