By Dow Jones Business News, October 02, 2013, 04:13:00 PM EDT
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices rose Wednesday in a bid for safe assets as congressional leaders continued
to search for a way to fund the government and raise its borrowing limit.
President Barack Obama summoned top lawmakers from both parties to the White House to discuss the government shutdown
and the looming deadline to raise the debt ceiling. Despite the standoff, some Republicans in the House of
Representatives have become amenable to passing a "clean" spending bill with no strings attached, though no bill had
been taken up in the House Wednesday.
Treasurys gained as the shutdown completed its second day, but came off their highs as signs of collaboration in
Congress mounted. The benchmark 10-year note (10_YEAR) yield, which moves inversely to price, fell 3.5 basis points on
the day to 2.622%, after dropping as low as 2.589%. The 30-year bond (30_YEAR) yield fell 1 basis points to 3.708%, and
the 5-year note (5_YEAR) yield fell 5 basis points to 1.385%. U.S. stocks closed lower.
"Treasurys are the beneficiary," said Jim Sarni, managing principal at Payden & Rygel. "What do people do in times of
uncertainty and crisis? They want to go up in quality. They want something they know they can count on."
Fears of a breach in the debt ceiling, which could lead to a default or delayed payment on U.S. Treasurys continued to
be the focal point for markets. Goldman Sachs Chief Executive Lloyd Blankfein also urged Congress to raise the debt
ceiling. But a solution could be tied into a spending bill.
"The biggest concern from the shutdown is the debt ceiling. There is also over the last 24 hours a growing number of
comments from politicians that in their mind they are already wrapping the two together," said John Canavan, bond market
analyst at Stone & McCarthy Research Associates.
Read: Debt ceiling fears show up in the bond markets.
Treasurys got an added boost Wednesday morning from a weaker-than expected payrolls report. Automatic Data Processing
Inc. said that 166,000 private-sector jobs were created in September, below expectations for a gain of 180,000. ADP also
revised August's jobs gains down to 159,000 from 176,000.
The ADP report took on added importance Wednesday as the U.S. government shutdown hindered the production of Labor
Department nonfarm-payrolls data, initially due out Friday. The ADP report, which has a mixed record of tracking nonfarm
payrolls, is serving as somewhat of a proxy for the more closely watched government data, which the Federal Reserve uses
to help decide the direction of monetary policy.
Labor market improvement is seen as one of the most important indicators of when and how the Fed will act to scale
back the pace of its $85 billion in monthly bond buys. The prospect of withdrawal from the Fed's easy money policies
sent yields sharply higher since May, but yields moved lower after the central bank decided not to begin the so-called
tapering in September.
Boston Fed President Eric Rosengren said Wednesday the central bank should reduce the pace of its bond purchases very
slowly, perhaps over several years. Data suggest the economy is "treading water" he said, which prompted his dovish
view. Chairman Ben Bernanke spoke, but did not discuss on fiscal or monetary policy.
Pimco's Bill Gross was out with hit latest investor commentary Wednesday, which argued that bond investors should stop
focusing on the taper, and instead focus on the Fed's short-term policy rate, the more important driver of the economy.
"The foray below 2.60% at the 10-year yield coincides with the release of PIMCO's monthly commentary from bond guru
Bill Gross," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. LLC, in a note. "The economy will
struggle in the face of rising yields and investors will do well not to argue with the Fed's view that beyond the end of
quantitative easing, short-term levels of interest rates will stay extraordinarily low."
Morningstar reported Wednesday that Gross's flagship Total Return Fund had its fifth consecutive month of outflows,
with investors pulling $5.4 billion from the fund in September. That went alongside a report from Investment Company
Institute that bond mutual funds as a whole snapped a losing streak to take in $1.29 billion of inflows during the week
ended September 25.
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