TREASURIES-Treasury yields likely stable ahead of payrolls

* Yields may hold steady after sell-off, before payrolls

* 7-year note auction prices with 1.7 bp tail

* Fed may need slow stimulus removal if recovery softens
(Recasts, updates comment, prices)

By Karen Brettell

NEW YORK, March 30 (Reuters) – Treasury yields are likely
to remain relatively stable ahead of Friday’s U.S. employment
data, following an almost two-week sell-off, as traders have
already priced in very bullish expectations.

U.S. government debt prices rose on Wednesday after data
from ADP Employer Services showed that private employers added
201,000 jobs in March, in line with expectations but
disappointing traders who had hoped for an even stronger
report.

Some traders are expecting non-farm payroll data due on
Friday will show employers added more than 250,000 jobs in
March, far above the 190,000 expected by economists.

“The ADP number today, although in line, may have reduced
some of the bullish calls for a really strong non-farm payroll
number on Friday,” said Jason Rogan, director of U.S. Treasury
trading at Guggenheim Capital Markets in New York.

However, “the market is still anticipating a pretty strong
nonfarm payroll number. I wouldn’t be surprised if the market
is short-covering going in the next two days in front of the
number,” he added.

Benchmark 10-year note yields (US10YT=RR: Quote, Profile, Research) have risen to
3.46 percent from a three-month low of 3.19 percent on March
16. The notes, however, remain in the middle of their range
from early February, when they rose as high as 3.77 percent.

Ten-year notes had tested technical yield support at around
3.52 percent in overnight trading on Wednesday.

Yields have risen in the past two weeks as hawkish
testimony from some Federal Reserve members raised concerns
about how quickly the U.S. central bank will move to remove
stimulus, and in turn raise benchmark interest rates.

“If the economic data starts to point to things looking
better, as we expect it to do, they will start pulling things
off the table,” said Mirko Mikelic, portfolio manager at Fifth
Third Asset Management in Grand Rapids, Michigan.

That said, the economic recovery has been slow and
continuing declines in housing and still-high unemployment are
likely to hamper consumer spending, he added.

“It’s going to take a much more extended period of time to
recover from the low,” Mikelic said. The Fed will “slowly start
taking things away as they monitor the economy.”

The central bank is expected to end its $600 bond purchase
program in June. Some investors are also concerned about
whether the Fed will then begin to sell debt holdings, which as
of last week included $1.31 trillion in Treasuries and $944
billion in mortgage-backed debt.

THIRD AUCTION TAILS

A $29 billion sale of new seven-year notes on Wednesday
priced at a 1.7 basis point concession, the third consecutive
auction tail, though some analysts said the rally ahead of the
auction may have weighed on the results.

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To see a graphic showing bidder participation and yields in
recent seven-year auctions, go to http://r.reuters.com/xes78r

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“We didn’t see anything that said it was time to rally,”
said Jim Vogel, interest rate strategist at FTN Financial in
Memphis, Tennessee. “It’s time to not to get hurt in an
auction, it’s not time to get aggressive or try to move in
front of people with all the money.”

Seven-year notes (US7YT=RR: Quote, Profile, Research) last traded up 9/32 in price
to yield 2.876 percent, after trading as low as 2.85 percent
before the auction.
(Additional reporting by Ellen Freilich; Editing by Dan
Grebler)

TREASURIES-Treasury yields likely stable ahead of payrolls