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US yields set 3-month lows; tame data reinforce Fed's doves

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U.S. Treasury yields fell to the lowest in three months on Wednesday, after weaker-than-expected jobs data on Tuesday reinforced expectations that the Federal Reserve is unlikely to reduce the size of its bond purchase program in the near term.

Buying overnight helped yields fall further, after a rally on Tuesday and no major data releases scheduled on Wednesday. The government is catching up on delayed economic data after the government's 16-day partial shutdown ended a week ago. Market focus is now largely centered on next week's Federal Reserve policy meeting, where the U.S. central bank is expected to keep its $85 billion a month bond purchase program unchanged.

"The Fed is kind of handcuffed from doing any tapering, the consensus is pushing it out to March. The weak (jobs) number supports it,'' said Sean Murphy, a Treasurys trader at Societe Generale in New York.

Benchmark 10-year notes were last up 7/32 in price to yield 2.48 percent, the lowest since July 23 and down from 2.60 before the jobs data was released on Tuesday. The yields have fallen from 3.00 percent on Sept. 5, before the Fed surprised investors by keeping the size of its bond purchase program unchanged.

The Fed bought $3.15 billion in notes due 2021 to 2023 on Wednesday as part of its ongoing purchase program.

A Reuters poll conducted on Tuesday showed 9 of 15 U.S. primary dealers see the Fed starting to reduce bond purchases in March, with many of them blaming Washington's fiscal impasse for a "significant'' impact on the Fed's timing.

Data over the coming months is likely to be skewed by the effects of the government shutdown, limiting insight into the actual state of the economy and to what degree the shutdown and the fight over raising the debt ceiling may have harmed growth.

The release of the October payrolls report has been pushed back to Nov. 8 from Nov. 1. Other key data 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.

Private releases including next week's ISM Manufacturing Index will be closely watched as they will be more current than delayed government reports.

"That data shouldn't be tainted and will give us a hint as to how everything that's happened in the last month really impacts the real economy,'' said Ira Jersey, an interest rate strategist at Credit Suisse in New York.

By Reuters.

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