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TREASURIES-Prices up as U.S. govt shutdown seen hurting economy
October 7, 2013 / 8:03 PM / 4 years ago

TREASURIES-Prices up as U.S. govt shutdown seen hurting economy

* U.S. shutdown seen hurting economy, delaying Fed tapering
    * One-month T-bill yields rise on debt ceiling fears
    * Fed buys $3.15 billion of notes due 2021-2023
    * Treasury to sell $64 billion in 3-, 10- and 30-year debt
this week

    By Ellen Freilich and Karen Brettell
    NEW YORK, Oct 7 (Reuters) - U.S. Treasuries prices rose on
Monday as the lack of progress on ending a partial government
shutdown heightened concerns about  economic growth and a
potential stalemate 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
data releases, including the monthly payrolls report scheduled
for last Friday, have been delayed by the shutdown.
    "The uncertainty in Washington is the clearest touchstone
for the push toward Treasuries prices going higher; obviously
the longer that the government is shut down, the more damaging
it potentially becomes for the economy," said CRT Capital senior
government bond strategist Ian Lyngen, in Stamford, Connecticut.
    Stock market losses also enhanced the lure of safe-haven
U.S. debt, but most U.S. Treasuries were only slightly higher
amid losses for Wall Street stocks.
    "It's just a holding pattern, waiting for any signs of 
progress on the shutdown or debt ceiling issues," said John
Canavan, fixed income analyst at Stone & McCarthy Research
Associates in Princeton, New Jersey.
    More dramatic market moves could be in store "if we get into
late October with no resolution," Canavan said.
    Treasury Secretary Jacob Lew has warned Congress that as of
October 17, the United States will have only about $30 billion
in cash on hand under its current $16.7 trillion debt ceiling.
    "If October 17 passes with no resolution in sight you'll see
a more significant breakdown in equities and a safe-haven bid
for Treasuries," Canavan said. "Right now markets might be a
little too sanguine about prospects for a resolution," he added.
    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 U.S. central bank surprised
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
reduce its bond purchases, especially since the shutdown has
deprived the central bank of data on what is happening in the
economy.
    "The longer this goes on, the weaker the economic data will
be, and that will probably push a tapering of quantitative
easing further out, from 2013 to 2014," said Gary Pollack, head
of fixed income trading at Deutsche Bank Private Wealth
Management in New York.  
    Benchmark 10-year notes were last up 4/32 in
price to yield 2.64 percent, down from 2.65 percent late on
Friday. Yields have dropped from 3.00 percent, the highest in
over two years, on Sept. 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 said on Sunday he
would not 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 Treasury bills are yielding 0.16
percent, higher than three-month and six-month
 bills, which pay 0.03 percent and 0.04 percent,
respectively.
    The Treasury said on Monday it will sell $30 billion in
four-week bills on Tuesday, $5 billion less than its previous
four-week sale. Some investors have worried that falling
issuance as the debt ceiling deadline approaches may create some
shortages of Treasuries collateral to back trades.
    The Fed bought $3.15 billion in notes due from 2021-2023 on
Monday as part of its ongoing purchase program. The Treasury
will sell $64 billion in new three-, 10- and 30-year bonds this
week.

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