REUTERS US TREASURY OUTLOOK-Bonds may ease again on bailout hopes [JCBLTRV]
By Chris Reese
NEW YORK, Sept 30 (Reuters) - U.S. Treasury debt prices
could ease again on Wednesday with investors continuing to
unwind recent safe-haven trades amid expectations Congress will
pass a $700 billion financial bailout later this week.
Bonds plunged and stocks surged on Tuesday on hopes
Congress will still approve the rescue package, a day after the
House of Representatives narrowly defeated it.
Government debt prices could fall again on Wednesday if
government officials continue to assure that the deal will get
done. Congress is unlikely to vote again on the plan until
Thursday.
"Unless overnight that there is some new bug that is going
to bring more votes against passage (of the bailout plan), I
think stocks will hold their ground and Treasuries will unwind
a little bit further," said Kim Rupert, managing director of
global fixed-income analysis at Action Economics LLC in San
Francisco.
However, any continued selling of bonds may be limited by
worries over whether the bailout package will work to free up
lending, and concerns about the overall economic slowdown.
"It will continue to be choppy," said Michael Kastner, head
of fixed income at Sterling Stamos Capital Management in New
York, adding "there is still a lot of flight-to-quality bids
for Treasuries especially in the front-end."
The focus on the plan, which would take bad mortgages off
of the books of financial companies, means some economic data
that might normally be quite important for the bond market will
likely take a bit of a back seat.
"Data is still fairly secondary at this point," Rupert
said.
Investors will however monitor the release of private
employment data from ADP Employer Services for September,
primarily for any clues as to what it might mean for the
government's September non-farm payrolls numbers to be released
on Friday.
Analysts on average are looking for ADP to say the private
employment sector contracted by 60,000 jobs after a contraction
of 33,000 in August.
The median of forecasts from analysts polled by Reuters is
for non-farm payrolls to show a contraction of 100,000 when the
data is released on Friday, from contraction of 84,000 in
August.
A key reading on manufacturing for September is also set
for the Wednesday release in the Institute for Supply
Management's index of national factory activity.
Analysts estimate factory activity contracted slightly,
with expectations of a reading of 49.5 from a reading of 49.9
in August. A reading of 50 separates contraction from
expansion.
"The ISM manufacturing measure has been idling very closely
to the 50 breakeven mark since May, and we expect that to
continue with a reading of 49.6 for September," Lehman Brothers
said in a note to clients.
Investors will also follow the release of data on August
construction spending, which is forecast to have fallen by 0.5
percent from a 0.6 decline in July.
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