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TREASURIES-U.S. bond prices fall on services data before supply
August 5, 2013 / 4:18 PM / 4 years ago

TREASURIES-U.S. bond prices fall on services data before supply

* U.S. ISM services index rebounds from three-year low
    * Fed buys $1.496 billion in long-dated Treasuries
    * U.S. Treasury to sell $72 billion in coupon supply


    By Richard Leong
    NEW YORK, Aug 5 (Reuters) - U.S. government debt prices fell
on Monday as traders reduced their bond holdings on surprisingly
strong data on the U.S. services sector after Friday's market
rally due to a disappointing July payrolls report.
    U.S. bond prices retraced some of Friday's rise in advance
of this week's August refunding during which the Treasury will
sell $72 billion worth of coupon-bearing debt.
    "We are giving up those gains on Friday. Now we are going
into this week's supply and whether people want them," said
Thomas Roth, executive director of U.S. government bond trading
at Mitsubishi UFJ Securities USA in New York.
    The Treasury Department will sell $32 billon in three-year
debt on Tuesday, $24 billion in 10-year notes
 on Wednesday and $16 billion in 30-year bonds on
Thursday.
    With yields lingering near two-year highs, the upcoming
supply might entice income-oriented investors who have stayed on
the sidelines, but bidding for the new debt could be held back
if investors worry about another bond market sell-off if the
economy shows further improvement, analysts and traders said.
    On the open market, benchmark 10-year notes were
down 13/32 in price with a yield of 2.650 percent, up 5.2 basis
points from late on Friday when the 10-year yield traded at
2.749 percent, just below a two-year high.
    The 30-year bond declined 26/32 to yield 3.738
percent, up 5.0 basis points from Friday. The 30-year yield was
within 6 basis point of the 23-month high set a month earlier. 
    Exit from weekend safe haven positions due to U.S. embassy
closures in the Middle East and Africa after an al Qaeda threat
also caused Treasury yields to rise. 
    While U.S. payrolls grew 162,000 last month, falling short
of traders expectations, analysts said the slower hiring might
not be enough to avert the Federal Reserve from scaling back its
bond-purchase stimulus as early as September.
    Apart from the jobs report, other recent data suggested the
U.S. economy is expanding albeit at a modest pace that has kept
unemployment high and inflation at a worrisome low level.  
    The Institute for Supply Management's index on the U.S.
services sector rose to 56.0 from 52.2 in June, signaling
ongoing improvement in retail, restaurant and other services
industries. Analysts had forecast a July reading of 53.0.
    The latest ISM services figure matched the level last seen
in February and rebounded from a three-year low. 
     
 
    Services industries slowed their hiring in July and
suppressed overall payroll growth, which disappointed investors
and reduced bets the Federal Reserve might cut its monthly bond
purchases later this year. 
    Until data point to a decisive acceleration in economic
growth, some fund managers are not convinced the central bank
will scale back its $85 billion of monthly purchases of
Treasuries and mortgage-backed securities.
    "The economic numbers have to be overwhelmingly convincing
that there's only an upward path for the economy," said James
Barnes, senior fixed income portfolio manager at National Penn
Investors Trust Co. in Wyomissing, Pennsylvania.      
    The central bank bought $1.496 billion in Treasuries that
will come due in February 2036 through November 2042, as a part
of its quantitative easing program, known as QE3, which is aimed
at helping the economy.

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