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TREASURIES-U.S. bond prices rise on weak stocks, Chinese data

Richard Leong
Thursday, 23 Jan 2014 | 10:34 AM ET

* Weaker-than-expected Chinese data revive bids for bonds

* In-line U.S. jobless claims signal moderate job growth

* U.S. to offer details on two-year floating-rate notes

* U.S. to sell $15 bln in 10-year inflation-protected debt

NEW YORK, Jan 23 (Reuters) - U.S. Treasuries prices rose on Thursday as losses on Wall Street and data suggesting a slowing in Chinese manufacturing revived safe haven bids for bonds.

The Chinese factory figures and an industry report showing weaker factory growth in the United States reduced bets that the Federal Reserve would accelerate its pace of reducing its bond-purchase stimulus. This notion helped to propel benchmark yields to their lowest levels in nearly six weeks.

"We started the day in positive territory on the Chinese data, which was a bit concerning," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

China's Flash Markit/HSBC PMI fell to 49.6 in January from December's 50.5, showing a faster rate of decrease in new export orders and employment. A reading below 50 signals a contraction in the manufacturing sector of the world's second largest economy.

The bond market rebound following Wednesday's losses came in advance of the Treasury Department's announcement of details on the debut of its two-year floating-rate notes next week.

This is the first new type of U.S. government debt security since the introduction of Treasury Inflation-Protected Securities in 1997.

The floating-rate note issue joins next week's fixed-rate supply of two-year, five-year and seven-year Treasuries debt, which analysts forecast would total $96 billion.

In the meantime, the Treasury will sell $15 billion in 10-year TIPS at 1 p.m. (1600 GMT).

While the U.S. and Chinese manufacturing data fell short of expectations, a government snapshot of the domestic labor market was mildly encouraging.

The U.S. Labor Department said 326,000 workers filed for first-time unemployment benefits in the week ended Jan. 18, matching the median forecast among economists polled by Reuters.

"The recent bag of data have been mixed at best, but it's not enough to derail the Fed from tapering at each meeting this year. The data have to really roll over," R.W. Pressprich's Milstein said.

Fed policy-makers will meet next Tuesday and Wednesday and analysts anticipate they will decide to further shrink their third round of quantitative easing which is aimed to hold down long-term borrowing costs to help the economy.

In December, the Federal Open Market Committee pared its monthly purchases of Treasuries and mortgage-backed securities by $10 billion to $75 billion in January. The Fed's policy-setting group is expected by some analysts to cut its monthly purchases by another $10 billion at its upcoming meeting.

On the open market, benchmark 10-year Treasury notes were 15/32 higher in price with a yield of 2.805 percent, down 6 basis points from late on Wednesday.

The 10-year yield touched 2.803 percent following a weaker-than-expected rise in U.S. existing home sales in December.

The 30-year bond rose 26/32 in price to yield 3.713 percent, down 5 basis points from Wednesday's close. The 30-year yield hit 3.708 percent earlier, which was its lowest level since early November, according to Reuters data.

The long-dated maturity was also bolstered by the Fed's latest QE3 buy-back. The central bank planned to buy $1.00 billion to $1.50 billion in Treasuries due 2036-2043 at 11 a.m. (1600 GMT).

On Wall Street, the three major stock indexes fell sharply in early trading with the Standard & Poor's 500 index losing 0.9 percent on the weak Chinese factory data.