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TREASURIES-Prices gain as US government shutdown seen hurting economy
October 7, 2013 / 1:22 PM / 4 years ago

TREASURIES-Prices gain as US government shutdown seen hurting economy

* US shutdown seen hurting economy, delaying Fed tapering
    * One-month T-bill yields rise in debt ceiling fears
    * Fed to buy $2.75-$3.50 bln notes due 2020-2023

    By Karen Brettell
    NEW YORK, Oct 7 (Reuters) - U.S. Treasuries prices gained on
Monday as lawmakers in Washington showed no progress towards
ending a partial government shutdown, raising concerns about its
impact on economic growth, and on concerns over the looming
showdown over raising the country's $16.7 trillion debt ceiling.
    The government moved into the second week of a shutdown on
Monday with no end in sight. Many U.S. economic releases,
including crucial monthly payrolls data that that had been
scheduled for last Friday, have been delayed due to the
shutdown.
    "The uncertainty in Washington is the clearest touchstone
for the push towards Treasuries prices, obviously the longer
that the government is shut down the more damaging it
potentially becomes for the economy," said Ian Lyngen, senior
government bond strategist at CRT Capital in Stamford,
Connecticut.
    Investors are also focused on the release on Wednesday of
minutes from last month's Federal Reserve policy meeting, which
could reveal more about why the central bank shocked markets by
deciding not to begin reducing its $85 billion a month bond
purchase program.
    The longer the shutdown lasts, the less likely the Fed is to
begin cutting back on bond purchases, especially as it is unable
to view government-issued data to gain a sense of the strength
of the economy.
    Benchmark 10-year notes were last up 10/32 in
price to yield 2.61 percent, down from 2.65 percent late on
Friday. The yields have dropped from 3.00 percent, the highest
in over two years, on September 6.
    Squabbling over raising the country's debt ceiling was also 
hurting riskier assets such as stocks, which may have added a
bid to Treasuries.
    Republican House Speaker John Boehner vowed on Sunday not to
raise the U.S. debt ceiling without a "serious conversation"
about the country's rising debt levels, while Democrats said it
was irresponsible and reckless to raise the possibility of a
U.S. default. 
    Most market participants see the United States as very
unlikely to miss payments on its debt, because a default would
likely have severe consequences, disrupting short-term funding
and collateralized markets that are backed by Treasuries, and
potentially creating broad aversion to U.S. debt that would
raise the country's borrowing costs.
    Some investors are nonetheless avoiding shorter-dated bills
that are most at risk of any delay in being repaid, and fears
that the increasingly divided Congress will be unable to come to
a solution may increase over the coming weeks.
    One-month Treasuries bills are yielding 0.15
percent, higher than three-month and six-month
 bills, which pay 0.04 percent and 0.10 percent,
respectively.
    U.S. Treasury Secretary Jack Lew has warned Congress the
United States would exhaust its borrowing capacity no later than
Oct. 17, at which point it would have only about $30 billion in
cash on hand. 
    The Fed will buy between $2.75 billion and $3.50 billion in
notes due from 2020-2023 on Monday as part of its ongoing
purchase program.

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