(Corrects timing of one-month bill auction in second to last
* U.S. shutdown seen hurting economy, delaying Fed tapering
* One-month T-bill yields rise in debt ceiling fears
* Fed buys $3.15 billion of notes due 2021-2023
* Treasury to sell $64 billion in 3-, 10- and 30-year debt
By Karen Brettell
NEW YORK, Oct 7 (Reuters) - U.S. Treasuries prices gained on
Monday as lawmakers in Washington showed no progress towards
ending a partial government shutdown, raising concerns about its
impact on economic growth, and on concerns over the looming
showdown over raising the country's $16.7 trillion debt ceiling.
The government moved into the second week of a shutdown on
Monday with no end in sight. Many U.S. economic
releases, including crucial monthly payrolls data that had been
scheduled for last Friday, have been delayed by the shutdown.
"The uncertainty in Washington is the clearest touchstone
for the push towards Treasuries prices going higher; obviously
the longer that the government is shut down, the more damaging
it potentially becomes for the economy," said Ian Lyngen, senior
government bond strategist at CRT Capital in Stamford,
Investors are also focused on the release on Wednesday of
minutes from last month's Federal Reserve policy meeting, which
could reveal more about why the U.S. central bank shocked
markets by deciding not to begin reducing its $85 billion a
month bond-purchase program.
The longer the shutdown lasts, the less likely the Fed is to
begin cutting back on bond purchases, especially as it is unable
to view government-issued data to gain a sense of the strength
of the economy.
"The longer this goes on, the weaker the economic data will
be, and that will probably push a tapering of quantitative
easing further out, from 2013 to 2014," said Gary Pollack, head
of fixed income trading at Deutsche Bank Private Wealth
Management in New York.
Benchmark 10-year notes were last up 8/32 in
price to yield 2.62 percent, down from 2.65 percent late on
Friday. The yields have dropped from 3.00 percent, the highest
in over two years, on Sept. 6.
Squabbling over raising the country's debt ceiling was also
hurting riskier assets such as stocks, which may have added a
bid to Treasuries.
Republican House Speaker John Boehner vowed on Sunday not to
raise the U.S. debt ceiling without a "serious conversation"
about the country's rising debt levels, while Democrats said it
was irresponsible and reckless to raise the possibility of a
Most market participants see the United States as very
unlikely to miss payments on its debt, because a default would
likely have severe consequences, disrupting short-term funding
and collateralized markets that are backed by Treasuries, and
potentially creating broad aversion to U.S. debt that would
raise the country's borrowing costs.
Some investors are nonetheless avoiding shorter-dated bills
that are most at risk of any delay in being repaid, and fears
that the increasingly divided Congress will be unable to come to
a solution may increase over the coming weeks.
One-month Treasuries bills are yielding 0.13
percent, higher than three-month and six-month
bills, which pay 0.02 percent and 0.04 percent,
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.
The Treasury said on Monday it will sell $30 billion in
four-week bills on Tuesday, $5 billion less than its previous
four-week sale. Some investors have worried that falling
issuance as the U.S. approaches the debt ceiling may create some
shortages of Treasuries collateral to back trades.
The Fed bought $3.15 billion in notes due from 2021-2023 on
Monday as part of its ongoing purchase program. The Treasury
will sell $64 billion in new three-, 10- and 30-year bonds this
(Editing by Chizu Nomiyama and James Dalgleish)