RTRS: TREASURIES-Bonds edge down as money market sentiment improves
* Fed's commercial paper buys may curb safe-haven bid
* Auction prospects weigh on short-maturity note prices
NEW YORK, Oct 27 (Reuters) - Treasury debt prices edged down on Monday on a slight improvement of sentiment in short-term funding markets helped by a Federal Reserve program to buy commercial paper.
Even so, investors' expectations for a protracted economic recession checked a sell-off in Treasuries.
The high stress in global money markets showed some more signs of abating on Monday, with a slight easing in overnight and three-month dollar-denominated London interbank offered rates.
A Federal Reserve program to buy commercial paper, which started operating on Monday, may help to free up short-term funding markets over time, which could dent the appeal of Treasury bills and other government debt, analysts said.
The 3-month Treasury bill yield was about 0.85 percent early on Monday in New York, down slightly from 0.88 percent late Friday.
Easing Libor rates and narrowing of interest rate swap spreads reflect diminishing risk aversion among investors, said T.J. Marta, fixed income strategist with RBC Capital Markets in New York.
"Net-net that reflects an improved perception of the short-term funding market. We are seeing some of the safe-haven bid taken out of Treasuries especially at the front end."
Prices for short-maturity notes were down. While traders expect a substantial Federal Reserve interest rate cut, potentially lifting prices, that was offset by prospects for added supply from auctions later this week.
The 2-year Treasury note's price was down 3/32 for a yield of 1.55 percent , versus 1.50 percent late Friday.
Investors continue to expect at least a half percentage point rate cut in the fed funds target rate from the current 1.5 percent this week. That prospect is putting a floor under 2-year note prices.
"People are speculating the Fed could go to sub-1 percent on the fed funds target rate," said Doug Bender, managing director with McQueen, Ball & Associates in Bethlehem, Pennsylvania.
"That is not out of the question. There are so many problems going on in the equity markets and emerging markets that the safe-haven bid for Treasuries I don't think is going to disappear anytime soon."
The benchmark 10-year Treasury note's price, which moves inversely to its yield, edged down 3/32 for a yield of 3.66 percent , versus 3.68 percent late Friday.
October is on track to be the worst month ever for the U.S. Standard & Poor's 500 stock index .SPX as panicked investors dump equity holdings and pile into into the safety of government debt. U.S. stocks opened more than 1 percent lower.
"It's unbelievable. The deleveraging just continues and there is nothing anybody can do about it," said Doug Bender, managing director with McQueen, Ball & Associates in Bethlehem, Pennsylvania.
The 30-year Treasury bond rose 14/32 in price for a yield of 4.03 percent , versus 4.05 percent late Friday. (Reporting by John Parry; Editing by Tom Hals)
