TREASURIES-Prices slip before supply and on fewer jobless claims
* Treasury to sell $29 billion seven-year notes at 1 p.m. EDT (1700 GMT
* New U.S. jobless claims fell to near six-year low of 305,000
* Four-week average of new claims fell 7,000 to 308,000
NEW YORK, Sept 26 (Reuters) - U.S. Treasuries prices slipped on Thursday as traders trimmed prices before the Treasury's seven-year note auction and as news of fewer new U.S. jobless claims raised the possibility of stronger-than-forecast September job growth.
The jobless claims report was "obviously constructive for the labor market outlook as we head into next week's non-farm payrolls report," said Ian Lyngen, Treasury strategist at CRT Capital Group in Stamford, Connecticut.
The thought of stronger U.S. payroll growth weighed on U.S. Treasuries prices.
Benchmark 10-year Treasury notes, down 2/32 in price before the jobless claims report was issued, were down 5/32 afterwards, yielding 2.65 percent.
Thirty-year Treasury bonds, down 4/32 in price before the jobless claims report came out, were down 12/32 afterwards, yielding 3.70 percent.
The number of Americans filing new claims for jobless benefits fell last week to a seasonally adjusted 305,000, a near six-year low, the Labor Department said on Thursday. The four-week average of new claims, which evens out weekly volatility, fell 7,000 to 308,000, the lowest level since June 2007.
"This level of claims is consistent with a +200,000 non-farm payrolls print, compared with the +175,000 consensus," Lyngen said.
The 305,000 new jobless claims was "a very, very good number for the economy," said Chris Rupkey, managing director and chief financial economist at Bank of Tokyo-Mitsubishi UFJ.
"The sky is not falling, things are picking up. A very good monthly jobs report is out there somewhere on the horizon. The Fed may have to wind down and exit these policies quicker than they think," he said, referring to monetary policy.
Treasuries prices have risen and yields have fallen since the Federal Reserve decided to put off unwinding any of its monetary accommodation until it had more confidence in the sustainability of the still-subdued economic recovery.
At its policy meeting last week, the Fed decided not to trim its large-scale asset purchases, citing strains in the economy from tight fiscal policy and higher mortgage rates. Fewer asset purchases would put downward pressure on bond prices and upward pressure on yields.
Still, plenty of uncertainty lies ahead, including whether or not the non-farm payrolls report can be released on time next Friday if the government shuts down on Oct. 1 should budget negotiations on Capitol Hill result in an impasse.
"It's crazy how we all have to become political analysts now," said Steve Van Order, fixed-income strategist with Calvert Investments in Bethesda, Maryland. "There will probably be a brief government shutdown next week, maybe for a couple of days. It doesn't look like there's enough time, much less will, to avoid it. The filibuster kind of helped make that happen.
"For bond people, the main immediate impact will be - if the government shuts down longer than Tuesday - that the BLS could have trouble getting the employment report out on Friday," Van Order said, referring to the Bureau of Labor Statistics.
In addition, unless Congress raises the debt ceiling by Oct. 17, the Treasury will only have $30 billion in cash on hand, leaving the United States on the edge of an unprecedented default, the Treasury said on Wednesday.
"Raising the debt ceiling could be more stressful than people had been thinking not that long ago," Van Order said.
Meanwhile, traders positioned for the Treasury's $29 billion seven-year note sale at 1 p.m. EDT (1700 GMT), the last of three coupon auctions conducted this week. The Treasury sold two-year notes on Tuesday and five-year notes on Wednesday.
As part of its ongoing efforts to foster economic activity and lower unemployment, the New York Fed purchased $1.565 billion in Treasury coupons on Thursday with maturities ranging from Feb. 15, 2036 through Aug. 15, 2043.
ALLOCATION LIMIT BOOSTED FOR FED'S REVERSE REPO EXERCISE
The Fed said the overnight fixed-rate reverse repurchase agreement operational exercise that its open market trading desk at the Federal Reserve Bank of New York has been conducting daily this week will have its allocation limit increased - from the current level of $500 million per counterparty per day to $1 billion per counterparty per day - beginning with the operation to be conducted on Friday, Sept. 27. All other terms of the exercise will remain the same.
The Fed said the operations are a "readiness exercise" and "a matter of prudent advance planning" by the Federal Reserve.
"These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future," the Fed said.
The announcement had no discernible impact on the market.