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		Home Page Mortgage News You Can Use US TREASURY OUTLOOK-Greenspan testimony, Treasury refunding Friday February 6, 4:38 pm ET By Ellen Freilich NEW YORK, Feb 6 (Reuters) - Modest U.S. job growth in January has given bonds a shot of confidence to face the twin uncertainties of new supply and Fed Chairman Alan Greenspan's Congressional testimony on monetary policy in the coming week. On Friday, the government reported that U.S. payrolls grew by 112,000 nonfarm jobs in January, a lukewarm performance that indicated that the economy was moving in the right direction, but not quickly enough to push the Fed to hike interest rates. "The problem with the payrolls is as long as they come in as they did (for January), there's a good chance economic growth will slow down and that constrains what the Fed will do," said Dominic Konstam, head of interest-rate strategy at Credit Suisse First Boston. "As long as inflation is still too low, it's very important that economic growth is strong." With job growth tepid, the chance that Fed Chairman Alan Greenspan will sound unequivocally upbeat about the economy is reduced, lessening the risk to bond prices. "Greenspan is certainly able to talk up the economy, but he's going to have to temper it by remarking on the fact that inflation is still falling and you don't want inflation to keep falling," Konstam said. Greenspan is scheduled to testify before the House Financial Services Committee at 11 a.m. (1600 GMT) on Wednesday and before the Senate Banking Committee on Thursday. Question and answer periods will follow Greenspan's prepared testimony. Anthony Karydakis, senior financial economist at Banc One Capital Markets, said Greenspan's overall tone on the economy will be fairly sanguine and that the bond market should be able to take that in stride. A chance exists for Greenspan to say something that will lead the market to think that the Fed could tighten soon, Karydakis said. But that chance is slight. "I don't think he will give a hint along those lines, given the base of (modest) job growth," Karydakis said. The market's other main challenge in the coming week is the Treasury's quarterly refinancing, comprised of auctions of three-, five- and 10-year notes on Tuesday, Wednesday and Thursday respectively. Bond prices rose on Friday due to unexpectedly weak January payrolls growth, but the gains might well have been larger, if not constrained by the prospect of Greenspan testimony and the three Treasury note auctions next week, analysts said. One uncertainty in the landscape for those auctions should be lessened by the time trading resumes on Monday, depending on the outcome of the Group of Seven major economic powers meeting in Boca Raton, Florida over the weekend. Because the weak dollar has helped the American economy, markets are betting that the United States will not bow to pressure at the G7 gathering to brake its slide. That means U.S. government securities will still benefit from support from foreign central banks who were still buying up Treasuries as part of their efforts to restrain the dollar's fall and slow the appreciation of their own currencies. Data from the Fed out late Thursday showed its custody holdings of Treasuries held on behalf of overseas central banks climbed $9.62 billion in the week to Wednesday, reaching a record $894.19 billion. Much of that was thought to have come from the Bank of Japan which has intervened heavily in recent months to prevent an export-damaging rise in the yen. With the 10-year note (US10YT=RR) yield at 4.08 percent late Friday, Chris Rupkey, vice president and senior financial economist at Bank of Tokyo/Mitsubishi, said that yields would probably still have to rise a bit to attract enough bidders to the Treasury's refunding auctions. "Even though job growth looks soft, there will probably have to be a concession to make it an easier sale," Rupkey said. "The 10-years are going to have to be sold at a higher yield -- 4.125 percent at a minimum or up to 4.20 percent -- to bring in some buyers."   Back to Original Article: Mortgage News You Can Use   Continue with: Stocks Could Slip as Earnings Taper Off Time to Be Choosy as Rally Stalls EARLY STAGES OF RECOVERY
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