TREASURIES-U.S. bonds gain on gov't shutdown, private jobs data
* U.S. September private jobs growth misses forecast
* One-year U.S. CDS price rises to highest since 2011
* U.S. sells $20 billion in seven-day cash management bills
* Fed buys $3.7 billion in medium-term Treasuries
NEW YORK, Oct 2 (Reuters) - U.S. Treasury debt prices rose on Wednesday as worries about a protracted government shutdown and data suggesting subpar job growth rekindled bids for bonds and supported the view the Federal Reserve would not reduce its stimulus in the near term.
The first partial federal government shutdown in 17 years began on Tuesday amid a stalemate between the two major U.S. political parties over the federal budget and healthcare reform. There has been little progress toward a deal that will return all government services and up to one million federal workers to their jobs.
Economists have forecast that each week of a shutdown would shave 0.1 percentage point from economic growth. Deutsche Bank said late Tuesday the growth reduction could intensify to 0.2 percentage point a week if the shutdown lasts longer than two weeks.
"Maybe the economy is not quite as strong as we thought," said Todd Colvin, senior vice president of global institutional sales with R.J. O'Brien and Associates in Chicago.
Another looming risk for financial markets is whether the U.S. politicians could agree in time to increase the statutory $16.7 trillion borrowing cap in order to avert a default, which traders fear would cause market chaos.
"There is more chatter about a default. They (traders) are getting more nervous about that," said Lou Brien, market strategist at DRW Trading in Chicago, although he and many analysts reckoned a default was unlikely to occur.
U.S. benchmark 10-year Treasury notes gained 14/32 in price for a yield of 2.599 percent, down 5 basis points from late on Tuesday. The 10-year yield hovered near a seven-week low set last week when traders added bond holdings in anticipation of the shutdown.
On Wall Street, stocks traded broadly lower with the benchmark Standard & Poor's 500 index last down 0.36 percent.
With federal agencies scaling back their operations, the Labor Department has said it will not release its closely watched monthly payrolls report, originally scheduled for Friday, during the shutdown. This meant traders will be relying upon privately-produced indicators to gauge the economy.
Payroll processor ADP said on Wednesday U.S. companies added 166,000 jobs in September, fewer than the 180,000 projected by economists polled by Reuters. This compared with a downwardly revised gain of 159,000 jobs in August.
"If the jobs data were not good enough for the Fed last month to reduce its bond purchase, this month's are probably not good enough either," said DRW's Brien.
The Fed on Wednesday bought $3.7 billion in Treasuries due in January 2020 to September 2020, which will be part its intended $45 billion purchases of government debt in October.
Earlier, the Mortgage Bankers Association said applications for home loans held steady last week, as lower interest rates stabilized credit demand to refinance and to buy a home.
As the U.S. economy showed moderate growth before the government shutdown, it remains vulnerable to a possible federal default if the squabble between Democrats and Republicans prevents a deal to raise the debt limit, which is set to run down on Oct. 17.
"When it comes to the debt ceiling, it will have grave implications for the U.S. on its creditworthiness and credit rating," said Robbert van Batenburg, director of market strategy with Newedge USA LLC in New York.
Concerns over a U.S. default have manifested in the credit default swaps market where the cost to insure Treasuries has jumped in recent days.
Investors would pay about 37,000 euros to insure 10 million euros worth of Treasuries for a year on Wednesday, according to Markit. This was highest premium on one-year U.S. sovereign debt since two years ago - during the first debt ceiling showdown between President Barack Obama and top Republican lawmakers.
The price on five-year U.S. CDS rose to its highest in nearly six months. Investors would pay 34,300 euros annually to insure 10 million euros worth of U.S. government debt, up from 32,000 euros on Tuesday.
Interest rates on Treasury bills that will come due in the between the debt ceiling deadline and the end of October fell on the day but remained elevated than other T-bill issues on default jitters.
"This suggests risks are rising," said R.J. O'Brien's
On the open market, the interest rate on the T-bill issue due on Oct. 31 slipped 1.3 basis points to 0.079 percent. This compared with the 0.030 percent on the T-bill due the following week.
The U.S. Treasury Department sold $20 billion of seven-day debt at an interest rate of 0.030 percent.