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TREASURIES-Bonds rise ahead of Fed buying of government debt

Published: 03 Jun 2009 17:12:16 PST

* Fed to purchase Treasuries on Wednesday and Thursday

* ADP employment data gives bonds an extra boost

* ISM, Bernanke still to come on Wednesday (Adds analysts' quotes, byline, updates prices)

NEW YORK, June 3 - U.S. Treasuries rose on Wednesday after a report showed larger-than-expected private sector job losses last month and ahead of Federal Reserve purchases of government debt.

The Fed will buy Treasuries on Wednesday and Thursday as part of a program to free up lending and lower longer-term interest rates such as those on mortgages.

"There is a minor uptick ahead of the purchases from the Fed," said Josh Stiles, bond strategist at IDEAglobal in New York.

Benchmark 10-year Treasury notes were trading 9/32 higher in price for a yield of 3.59 percent, down from 3.62 percent late on Tuesday, while 30-year bonds were 10/32 higher for a yield of 4.47 percent from 4.49 percent.

Bonds extended gains on Wednesday morning after ADP Employer Services said U.S. private employers shed 532,000 jobs in May, which was above economists' forecasts for 520,000 job losses. ADP also revised higher the number lost in April.

The higher-than-expected job loss, and the revision, had some analysts thinking the risks may be skewed to the high side when it comes to job losses in the May U.S. nonfarm payrolls report, to be released by the government on Friday.

"On the ADP data there was a big upward revision to April. That is a mild negative for the stock market and a mild plus for Treasuries," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.

The median of forecasts from economists polled by Reuters is for May nonfarm payrolls to have contracted by 520,000 after a contraction of 635,000 jobs in April.

In the interim, analysts will look for market direction from the Institute for Supply Management's April report on the massive U.S. services sector later on Wednesday morning.

Fed Chairman Ben Bernanke is also scheduled to testify on economic and financial conditions and the federal budget at 10 a.m. (1400 GMT) on Wednesday.

The Fed purchases of Treasuries typically begin at 10:15 a.m. (1415 GMT) and wraps up about 11 a.m. (1500 GMT).