TREASURIES-U.S. bond prices slip as focus shifts to jobs data

Karen Brettell and Richard Leong
Monday, 21 Oct 2013 | 4:04 PM ET

* Traders look to delayed U.S. Sept jobs data for direction

* Treasury bill auction rates recede after debt ceiling deal

* Overnight repo costs normalize at around 0.06 pct

* Fed buys $3.69 bln of notes due 2019 and 2020

NEW YORK, Oct 21 (Reuters) - U.S. Treasuries prices fell on Monday, a day ahead of the release of the government's September employment data, which was delayed by the 16-day partial federal government shutdown. Following a rally last week that sent benchmark yields to their lowest levels since late July, traders refrained from taking big bets, analysts said. "We had a good rally with the bond market on expectations of softer data after the shutdown and less risk of a U.S. default. Now with the debt ceiling debate abated, there will be focus back on the data," said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey. Last Wednesday, U.S. lawmakers increased the $16.7 trillion debt ceiling until Feb. 15 and reopened the government, turning the market focus back to when the Fed is likely reduce the pace of its $85 billion-a-month in bond purchases. The government shutdown turned the spigot off for much U.S. economic data, muddying insight into the economy's strength and pushing back expectations on when the Fed is likely to begin to taper until to the 2014 first quarter. The payrolls report was originally scheduled for release on Oct. 4. "The expectations are probably that (the jobs report) has a better chance of being stronger because it was pre-government shutdown," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York. Economists polled by Reuters expect that U.S. employers added 180,000 workers in September, up from 169,000 in August, while the jobless rate is seen having held steady at 7.3 percent. Market reaction to the number may be limited, however, because of the delay in the release. The October payrolls report, whose release has been pushed back to Nov. 8 from Nov. 1, will be of greater importance. "I think the market is already looking at the report for October. That will be more important in terms of what the near-term is, and also Fed policy," Comiskey said. On below-average volume, benchmark 10-year notes were last down 6/32 in price to yield 2.607 percent, up 2 basis points late on Friday. The yield rose as high as 3 percent on Sept. 5, before the Fed surprised investors by keeping the size of its bond purchase program unchanged. The 30-year bond fell 18/32 in price with a yield of 3.681 percent, up 3 basis points from late Friday. Among other data the government has rescheduled are the consumer price index for September, which will now be released on Oct. 30, and the producer price index for September, now due on Oct. 29. Industry data on Monday showed that U.S. home resales fell in September and prices rose at their slowest pace in five months, a sign that higher mortgage rates may be taking some edge off the housing recovery.

Chicago Fed President Charles Evans said on Monday that it will likely take months to sort out the picture of the labor market and that a tapering of bond purchases may begin later because of the budget battle in Washington. The Fed bought $3.69 billion in notes due 2019 and 2020 on Monday as part of its bond-buying program. In addition, short-term interest rates fell further in the wake of the temporary debt deal in Washington. The cost of borrowing overnight against Treasuries traded back at more normal levels, at around 0.06 percent on Monday. An influx of cash as investors returned to the market had sent the cost of borrowing against Treasuries into negative levels, around minus 0.10 percent, late on Friday. Concerns about taking possession of Treasuries bills that were at risk of a U.S. default had disrupted the repo market before Wednesday's agreement to raise the debt ceiling, making it more expensive to obtain the loans. The Treasury on Monday sold a combined $65 billion worth of three-month and six-month bills at interest rates lower than last week's levels prior to the debt ceiling extension. Demand at these T-bill auctions rebounded from the lows last seen in 2009. The Treasury will sell $35 billion in one-month bills on Tuesday, up from $20 billion last week after the debt deal.