T-Bills Hurt by Debt Ceiling Worries
U.S. Treasuries yields rose on Wednesday as investors bet that Friday's highly anticipated payrolls number will come in relatively strong, after an employment report on Wednesday was near analysts' expectations.
U.S. private employers added 175,000 jobs in January, the ADP National Employment Report showed on Wednesday.
Economists surveyed by Reuters expect that Friday's jobs data will show that employers added 185,000 jobs in January.
"There is a bit of pent up selling pressure, there has been nothing but rallies over the last few weeks and I think this is the result of people looking forward to non-farm payrolls," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York, adding that "rates have baked in a lot of negativity."
Benchmark 10-year Treasuries yields were last 2.65 percent, after falling from more than 3 percent at the beginning of the year as investors flee emerging market assets and stocks tumble, increasing the safe-haven demand for U.S. government debt.
The 10-year notes have struggled to stay below yields of 2.60 percent, however, as investors that expect yields could rise on stronger economic momentum are reticent to buy at the lower yields.
"I think that most participants are looking for a stronger number, mainly so they can buy at higher yields," said Thomas di Galoma, co-head of fixed-income rates at ED&F Man Capital in New York.
Weakening economic data has increased speculation that the Federal Reserve may slow or cease reductions in its bond purchase program if the economy worsens, though many see data as needing to weaken considerably from current levels to alter the Fed's plans.
The Fed last week cut its monthly bond purchases by $10 billion, to $65 billion. It bought $0.97 billion in Treasuries Inflation-Protected Securities (TIPS) due from 2040 to 2043 on Wednesday as part of its ongoing purchase program and will buy between $2.50 billion and $3.0 billion in Treasury notes due 2019 to 2021 later on Wednesday in a separate operation.
Treasuries bill yields, meanwhile, continued to rise on Wednesday as investors were wary of buying debt that is exposed to default as the U.S. bumps up again against its debt ceiling.
Washington is due to reinstate a limit on its borrowing at the end of this week and Treasury Secretary Jack Lew said the administration could use accounting measures to stay under the new cap until the end of February.
Yields on the on-the-run one-month Treasuries bills that come due on March 6 rose to 13 basis points on Tuesday, the highest since October, when the debt ceiling was last an issue.
The U.S. Treasury also said on Wednesday it will sell $70 billion in new coupon-bearing debt next week, but that it may cut auctions sizes at its next quarterly refunding because of a faster-than-expected narrowing of the nation's budget deficit.
Next week's sales will include $30 billion in three-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds. The Treasury added that reopening sized for future auctions of the government's new two-year floating rate notes are likely to be between $12 billion and $15 billion.