Bonds Caught Between Safety Bid, Supply Overload

U.S. Treasurys were little changed Wednesday as safe-haven bidding sparked by signs of a deteriorating economy was offset by worries that a spate of debt issuance will dilute the Treasurys market.

Stocks fell Wednesday, helping to put a floor under bond prices as investors focused on the faltering global economy a day after Barack Obama won the U.S. presidential election.

Data Wednesday showed private employment and the U.S. services sector both shrank more than expected in October.

"This all fits that economic activity slowed abruptly in October. All this suggests downside risk to growth," said Jonathan Basile, economist at Credit Suisse in New York.

Benchmark 10-year Treasury notes were trading unchanged in price for a yield of 3.73 percent, while 2-year notes were also flat in price for a yield of 1.38 percent.

The Treasury announced Wednesday it will sell $55 billion of 3-year notes, 10-year notes and reopened 30-year bonds next week to meet its quarterly refunding needs. The amount was at the higher end of market analysts' forecasts and was significantly above the $18 billion refunding in November of last year.

The government needs the extra money to supply its various programs intended to shore up the faltering financial industry.

"The massive amounts that the government has to raise is putting pressure (on Treasurys), particularly at the short end," said David Dietze, chief investment strategist at Point View Financial Services in Summit, N.J.

Data Wednesday showed private employment fell steeply than expected in October. ADP Employer Services said U.S. private employers cut 157,000 jobs in October, which was more than the 100,000 forecast by analysts.

Analysts said the ADP data raised the risk of a much weaker October non-farm payrolls report on Friday. The median forecast from analysts polled by Reuters is for non-farm payrolls to have contracted by 200,000 last month after shrinking by 159,000 jobs in September.

Also Wednesday, the Institute for Supply Management said the vast U.S. services sector shrank unexpectedly sharply in October. The ISM non-manufacturing index came in at 44.4 versus 50.2 in September. The level of 50 separates expansion from contraction.

Five-year Treasury notes were trading 1/32 higher in price for a yield of 2.52 percent from 2.53 percent late Tuesday, while the 30-year bond was flat in price for a yield of 4.19 percent.

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