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With Turmoil Abroad, Investors Take Cover in US Bonds

Wednesday, 3 Jul 2013 | 8:24 AM ET
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U.S. Treasurys prices turned flat on Wednesday, as encouraging U.S. data overwhelmed the impact of political uncertainty in Europe and turmoil in the Middle East that sent investors scampering for the safety of government debt.

Ahead of a blitz of U.S. data, bond yields, which trade opposite of prices, fell. Portugal's deepening political woes -- and fears about China's slowing economy -- sent European yields soaring, prompting traders to seek haven in the relative security of U.S. government bonds. Unrest in Egypt threatens to topple the government, which has sent oil prices soaring and also sparked demand for safe-haven assets like gold and the U.S. dollar.

Yet the bond rally was squelched by data showing private companies hired 188,000 new workers in June, considerably better than expectations, indicating the job market continues to heal slowly, according to a report from ADP. That helped stock futures cut their losses, diminishing the allure of Treasurys.

The benchmark 10-year Treasury note rose 3/32 in early U.S. trading, to yield 2.468 percent. The 30-year bond rose 2/32 in price to yield 3.475 percent.

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Investors are still speculating whether or not the Federal Reserve could continue its bond buying program in place to support the labor market, especially as U.S. data proves resilient in the face of global weakness.

Investors will get new fodder in the form of key data due out over the next few days, which will bracket the U.S. Independence Day holiday.

Wednesday's data includes ADP's private sector payroll report, used as rough guidance for the all-important U.S. jobs report. It is released at 8:15 a.m., and is expected to show that 160,000 private sector jobs were added in June, compared to the 135,000 it reported for May. That will be immediately followed by jobless claims data, and ISM non-manufacturing data, which will give a read on services sector activity and also a look at jobs in the sector.

U.S. manufacturing activity grew in June but hiring in the sector was the weakest in nearly four years, the Institute for Supply Management said on Monday. That could, in turn, bode ill for Friday's nonfarm payrolls release.

While economists polled by Reuters expect payroll additions of 165,000 jobs for June, the possibility of a disappointing figure on Friday could "definitely" lead investors to think the Federal Reserve won't slow its bond buys any time soon, said Wilmer Stith, co-manager of the Wilmington Broad Market Bond Fund in Baltimore.

—Reuters contributed to this article.

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