* President Obama nominates Janet Yellen to lead the Fed
* Treasury sold $21 billion of 10-year notes
* October Treasuries bill yields elevated, repo costs rise
By Ellen Freilich
NEW YORK, Oct 9 (Reuters) - U.S. Treasuries prices dipped on
Wednesday as the market remained in a state of limbo, waiting
for elected officials to reverse the partial shutdown of the
U.S. government and lift the U.S. debt ceiling.
Markets took President Obama's widely expected nomination of
Federal Reserve Vice Chair Janet Yellen to lead the Fed as a
sign that the U.S. central bank would remain accommodative as it
tries to foster economic activity and lower unemployment.
"Fed policy is unlikely to depart from a lot of the policies
that have been put in place and markets are comfortable with
that notion of continuity," said Karim Basta, director of
economic research and chief investment strategist at III
Associates in Boca Raton, Florida.
"You'll always find a few people who will criticize it, but
the Fed is trying its best to counteract the damaging effects of
fiscal policy, especially over the last two or three years.
That's the way people look at it," he said.
The release of minutes from the Fed's last policy meeting
evoked little reaction from the bond market because the market
was looking ahead.
"The minutes are backward looking. The market assumed Yellen
would be in and today you know she is in and that's forward
looking," said Quincy Krosby, market strategist at Prudential
Financial in New York.
Treasuries have largely traded sideways for the past two
weeks as investors hesitate to enter new trades amid a political
contest in Washington.
The bond market's relatively placid reaction to the
proceedings in Washington up to now is due to investors having
seen a similar drama before and to expectations that a
resolution will be reached at the 11th hour.
"Market reaction so far has been very benign - except for a
couple of spots that were quirky - because we've been through
this before," said Jon Mackay, senior fixed income strategist at
Morgan Stanley Wealth Management in New York.
"Markets are counting on politicians not pushing this over
the cliff and reaching a last-minute deal," he said.
Still, as the October 17 date - when the Treasury says it
will be left with about $30 billion on hand - draws closer,
investors will be more unwilling to put money to work, he said.
The U.S. government entered its ninth day of partial
shutdown on Wednesday and fears have been rising that political
conflict could prevent an increase in the debt ceiling.
Some expect a resolution to raise the debt ceiling will
reduce the safety bid for Treasuries, sending yields higher,
while others see the logjam as adding to demand for bonds.
Benchmark 10-year Treasury notes were last down
7/32 in price to yield 2.66 percent, up from 2.64 percent late
The Treasury sold $21 billion in 10-year notes on Wednesday,
the second sale of $64 billion in new coupon-bearing supply this
week. It will also sell $13 billion in 30-year bonds on
Many U.S. economic releases issued by the government,
including Wednesday's wholesale trade data and the crucial
monthly payrolls data that had been scheduled for last Friday,
have been delayed by the shutdown, muddying the picture of the
state of the economy.
The partial government shutdown is seen hurting economic
growth, which has added to the conviction that the Fed will not
start to trim its bond purchases until next year.
Short-dated Treasury bill yields also remained elevated on
Wednesday, and the cost of financing trades through repurchase
agreements rose, as investors avoided U.S. debt that comes due
in late October. Notes due at the end of October are most at
risk of delayed payments if the government fails to increase its
$16.7 trillion debt ceiling.
U.S. Treasury Secretary Jack Lew has warned Congress the
United States would exhaust its borrowing capacity no later than
Oct. 17, at which point it would have only about $30 billion in
cash on hand.
Treasuries bills that mature on Oct. 24 are yielding 27
basis points, much higher than longer-dated debt that matures
outside of what investors see as the danger zone. Three-month
and six-month bills are yielding 0.046
percent and 0.086 percent, respectively.
The cost of borrowing funds overnight against Treasuries in
repo also jumped to around 15 basis points on Wednesday, up from
around 7 basis points on Tuesday.