TREASURIES-U.S. bond yields hit 3-month lows as jobs data disappoint
* Delayed data on U.S. jobs growth fall short of forecast U.S. Fed likely to pare bond buying in March-Reuters poll
* Futures suggest traders expect Fed hiking rates in 2015
* Three-month Libor falls to record low 0.23835 pct
NEW YORK, Oct 22 (Reuters) - U.S. Treasuries yields fell to the lowest in three months on Tuesday after data showed September job growth slowed to its weakest pace in 15 months, reducing expectations that the Federal Reserve would pare its bond purchases this year. U.S. employers added 148,000 workers last month, the Labor Department said on Tuesday, which was fewer than the 180,000 forecast by economists. The slower hiring was mitigated by a dip in the jobless rate to 7.2 percent, the lowest level since November 2008. This downward shift in job growth, together with the expected drag from a 16-day partial government shutdown, has complicated the Federal Reserve's decision on when it could begin to reduce its latest round of quantitative easing, also known as QE3. Back in May, Fed Chairman Ben Bernanke said the central bank might consider tapering its $85 billion monthly purchases of Treasuries and mortgage-backed securities late this year. "Sit back and forget about any tapering until 2014," said Paul Montaquila, fixed income investment officer with Bank of the West and BNP Paribas Securities in San Francisco. A Reuters polled conducted on Tuesday showed 9 of 15 U.S. primary dealers see the Fed tapering in March, with many of them blaming Washington's fiscal impasse having a "significant" impact on the Fed's timing to pare stimulus. "Clearly this was a disappointing jobs report. The market was setting up for a stronger number, and we haven't even seen the damage from the government shutdown," Montaquila said. Bets that the Fed would postpone a reduction of QE3 into 2014 were also accompanied by expectations it would push back the timetable to raise short-term interest rates, which have been hovering near zero since the end of 2008. Short-term interest rates futures now suggest the Fed will raise rates no earlier than April 2015, giving the probability of an increase in that month about 54 percent, according to CME Group's Fed Watch, which generates probabilities based on the price of Fed funds futures traded at CME Group Inc's CME.O Chicago Board of Trade. The protracted rate outlook spurred purchases of Treasuries that mature in five years and longer. Benchmark 10-year notes were last up 25/32 in price to yield 2.518 percent, which was the lowest since July 24 and down 9 basis points on the day. Since the Fed surprised investors by leaving its monthly QE3 purchase alone last month, the 10-year yields have fallen from a 25-month high of 3 percent.
An improving jobs picture is key to the Fed reducing its bond purchase program, which is meant to stimulate growth and cut the jobless rate. On Tuesday, the Fed bought $1.56 billion in bonds due from 2036 and 2043 on Tuesday as part of its ongoing purchases. "It's kind of ugly. It's kind of disappointing," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee, said of the delayed release of last month's jobs data. "It keeps QE alive and bonds will like it and so might stocks. This is positive for all asset prices." Wall Street stocks rose on hopes the Fed will stick to its current level of QE purchases into next year. The Standard & Poor's 500 index rose to a new intraday high. The jobs data for September had been delayed by the first partial federal government shutdown in 17 years. They were originally scheduled for release on Oct. 4. Data over the coming months is expected to reflect uncertainties about the effects of the shutdown, the debate over fiscal policy and concerns about raising the debt ceiling only until February, given fears of renewed political conflict and another possible shutdown as that deadline approaches. The release of the October payrolls report has been pushed back to Nov. 8 from Nov. 1. Other key data that have been delayed includes 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.
Foreigners soured on long-term U.S. securities in August, shedding both U.S. government bonds and stocks, U.S. Treasury data showed on Tuesday. In the short-term markets, relief over the debt ceiling being lifted last week continued to bring cash back to short-term loans, sending down rates. The benchmark three-month London interbank offered rate dropped to a record low 0.23835 percent on Tuesday. Data on Tuesday also showed that foreign Treasury holdings fell by $10.8 billion in August. China, the largest foreign U.S. creditor, saw its holdings decline $11.2 billion to $1.268 trillion.