October 1, 2014 / 1:37 PM / 3 years ago

TREASURIES-Yields fall as global growth outlook falters

* Weak Asian, European factory data adds bid for German, US
    * Short covering before Friday's jobs report adds to rally
    * Collateral shortage hurts repo market
    * Fed funds rate falls to 7 bps

    By Karen Brettell
    NEW YORK, Oct 1 (Reuters) - U.S. Treasuries rallied on
Wednesday as Germany sold new bonds at record low yields, after
weak factory data in Europe and Asia increased concerns about
slowing global growth.
    Short covering by investors betting on yield increases
heading into Friday's highly anticipated U.S. jobs report for
September was seen adding to the Treasuries rally. Concerns
after the first diagnosis of a patient in the United States with
Ebola may have also added a safety bid.
    Treasuries yields fell in line with German bund yields after
dwindling demand cut factory activity across much of Asia and
Europe in September, sending it to multi-month lows and raising
the chances that global growth will slow in the months ahead. 
    Germany sold new 10-year bonds at record low yields of 0.93
percent on Wednesday. 
    Benchmark 10-year Treasuries were last up 9/32
in price to yield 2.45 percent, down from 2.51 percent on
    The rally came even as a private employment report on
Wednesday showed that U.S. employment grew at a solid pace of
213,000 jobs in September. 
    A shortage of high quality collateral even after quarter-end
also continued to disrupt the repurchase agreement market, where
many bonds are trading at negative yields, or "special."
    "We have record shorts in the front end of the market, there
is no collateral around, repo is very high so people are getting
squeezed on their financing," said Tom Tucci, head of Treasuries
trading at CIBC in New York.
    The federal funds rate fell for a second day to 7 basis
points. The Federal Reserve is expected to guide this rate to
the higher end of its 0-25 basis point range as it gets closer
to raising interest rates.
    Record demand for Treasuries at the New York Federal
Reserve's reverse repurchase agreement operation on Tuesday,
which is meant to help the central bank set a floor on
short-term rates, resulted in the Fed paying no interest on the
overnight loans for the first time.
    Banks and investors bid more than the Fed's $300 billion
daily limit for the first time, with $407 billion offered in
total. Banks and the funds have previously been paid 5 basis
points, or 0.05 percent, for the loan. 

 (Editing by Chizu Nomiyama)

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