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TREASURIES-Bonds dip as traders brace for robust job data
Reuters, 3 June 2010

* Jobs data suggests U.S. economic recovery intact
* Treasury to sell $70 bln 3Y, 10Y, 30Y supply next week
* Fed's Bernanke says high unemployment remains a concern
* Fed's Lockhart: May be time to consider U.S. rate hikes (Updates market action after auction details announcement)

U.S. Treasury debt prices fell modestly in choppy trading on Thursday as traders trimmed their safe-haven holdings of government bonds in anticipation of a robust May payrolls report.
The sell-off in Treasuries slowed as the market found technical support and U.S. stocks fell on lackluster May sales by major retailers.

"The flight-to-quality has started to fade a bit," said Richard Lee, managing director of fixed income at Wall Street Access in New York.

Benchmark yields touched two-week highs on encouraging jobs data and stocks rose briefly on lessened anxiety over Europe's sovereign debt crisis.

The U.S. Treasury said it will sell a combined $70 billion of coupon-bearing securities next week. It will sell $36 billion of three-year notes, $2 billion less than May. It left the 10-year and 30-year reopening sizes unchanged.

The government began paring the auction sizes of shorter-dated debt in May because of a pickup in tax receipts in recent months.

Benchmark 10-year notes US10YT=RR fell 3/32 in price to 101-6/32. Their yield, which moves inversely to price, last traded at 3.36 percent, up from 3.25 percent on Wednesday.

The 10-year yield touched 3.427 percent earlier, crossing a key retracement level from the year-high of 4.00 percent to a 13-month low of 3.06 percent. If it were to end below 3.42 percent on Thursday, the 10-year yield will likely ease back to 3.25 percent, according to analysts.

Amid the bond sell-off, the spread between two-year and 10-year note yields grew to 2.55 percentage points, the widest in about two weeks.

JOCKEYING BEFORE PAYROLLS

U.S. labor market figures so far this week support a growing view of a robust half-a-million increase in jobs in the government's payrolls report due on Friday. Much of the improvement will come from federal hiring of temporary Census workers. This could undermine bets that the U.S. Federal Reserve will not raise interest rates until 2011.
If the federal payroll figure were to beat analysts' forecast, Treasuries are vulnerable to further selling. "We would have a reason for equities to run up and bonds to sell off," said Justin Hoogendoorn, managing director of U.S. fixed income at BMO Capital Markets in Chicago.

A report from ADP Employer Services on Thursday said U.S. private employers added 55,000 jobs in May and an upwardly revised 65,000 in April.

The Institute for Supply Management reported its labor gauge of U.S. services industries rose, with its employment index at its highest level since December, 2007, while the government said U.S. claims for initial jobless benefits fell moderately last week.

While the economy has started to produce net new jobs this year, unemployment is stuck at a high level, which remains a top concern for the Fed policy-makers.

Fed Chairman Ben Bernanke told a small business group in Michigan that the jobless rate, which was at 9.9 percent in April, is a "particularly difficult issue."

Atlanta Fed President Dennis Lockhart said on Thursday the U.S. economy is almost strong enough for the U.S. central bank to begin thinking about raising interest rates. But he added that the timing for a rate hike had not yet arrived.



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