TREASURIES-Safe-haven bonds rise as government shutdown looms
* U.S. government shutdown looms, hopes remain for last-minute deal
* August personal income +0.4 percent, spending +0.3 percent
* New York Fed President Dudley: labor market not yet healthy
NEW YORK, Sept 27 (Reuters) - U.S. Treasuries prices rose on Friday as concerns about the implications of a possible U.S. government shutdown drove safe-haven demand for government debt.
Washington braced for a partial shutdown on Oct. 1 as Congress struggled to pass an emergency spending bill that Republicans want to use to achieve Tea Party-backed goals, such as defunding the new healthcare reform law.
"The driver has been what's going on in Washington," said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York. "Equities have been trading pretty weak and there's definitely a safe-haven bid in the Treasury market."
Benchmark 10-year Treasury notes were up 10/32, their yields easing to 2.62 percent from 2.65 percent late on Thursday. Five-year notes rose 6/32 in price, their yields eased to 1.40 percent from 1.44 percent late on Thursday.
Thirty-year bonds rose 10/32, their yields easing to 3.68 percent from 3.70 percent.
If the government shuts down non-essential operations on Tuesday, a number of key economic data, including the all-important jobs report due on Friday, could be delayed.
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.
Steve Van Order, fixed-income strategist with Calvert Investments in Bethesda, Maryland, said the wrangling in Washington could continue until stock investors get nervous and the stock market sells off sharply.
"That's usually the signal to politicians to scramble and do something," he said.
"We think the volatility risk is shifting more toward stocks now and for buyers of corporate debt, that could offer some opportunities if spreads widen out a bit," he said.
While a government shutdown is possible, analysts say ultimately a compromise will likely be reached to raise the debt ceiling, which is the more crucial issue.
Earlier, data showed modest gains in personal income and spending in August, as well as a narrow rise in a closely watched inflation measure.
"Consumer spending and PCE inflation this morning are not telling the Fed they need to taper any time soon," said Chris Rupkey, managing director and chief financial economist at Bank of Tokyo-Mitsubishi UFJ.
The prospect of low interest rates for longer has lifted Treasury prices since the Fed decided last week to put off unwinding any of its monetary accommodation until it had more confidence in the sustainability of the economic recovery.
New York Federal Reserve Bank President William Dudley said on Friday that the U.S. labor market still cannot be regarded as healthy. And on Monday, he said the Fed still needs to push hard against threats to the U.S. economic recovery.
Narayana Kocherlakota, president of the Minneapolis Fed Bank, in an interview with Reuters, said that the next Fed chair will need to resist the temptation to wind down monetary stimulus.
"The tone in the Treasury market improved in the last week since the 'un-taper'," said Gene Tannuzzo, fixed income portfolio manager at Columbia Management in Minneapolis.
Over the longer term, Treasuries are drawing buyers because they are perceived as being more fairly valued than they were last May when benchmark 10-year Treasury yields were about 100 basis points lower than they are today, Tannuzzo said.
"We went from overvalued then to approximately fair value today," he said, citing fair value for the 10-year yield at between 2.60 percent and 2.90 percent.
Investors in bond funds worldwide put a net $4.5 billion into bond funds in the week following the Fed's decision to keep its bond-buying program unchanged, data from a Bank of America Merrill Lynch Global Research reported showed Friday.
The flows into bond funds in the week to Sept. 25 reversed eight straight weeks of net outflows from the funds and marked the strongest new demand for the funds in five months.
As part of its ongoing efforts to foster economic activity and lower unemployment, the New York Fed purchased $5.551 billion in Treasury coupons on Friday with maturities ranging from June 30, 2018 through May 31, 2019.