TREASURIES-Tight in Asia before US jobs report

Reuters - Thursday, July 2

TOKYO, July 2 - U.S. Treasuries were little changed in Asia on Thursday as investors retreated to the sidelines before the government's monthly employment data and an announcement on next week's debt auctions later in the day.

* Economists expect the U.S. economy to have cut 363,000 jobs in June, more than the 345,000 lost in May, while the jobless rate is forecast to have risen to 9.6 percent from 9.4 percent. The Labor Department will announce the data at 1230 GMT. [ECI/US]

* If the results of the nonfarm payrolls data are in line with forecasts, or even weaker than expected, they will further dampen hopes for a quick recovery in the economy.

* But even so, poor figures may not spark heavy government bond buying as investors are also watching how much debt the Treasury will sell next week. The Treasury will announce the size of next week's auctions, including 10-year notes, at 1500 GMT.

* The government sold bonds totalling a record $104 billion in auctions last week. It plans to bring $2 trillion in new bonds to market this year.

* The 10-year note <US10YT=RR> was unchanged in price to yield 3.549 percent. The yield hit eight-month highs above 4 percent last month.

* The two-year note <US2YT=RR> price was steady to yield 1.054 percent and the 30-year bond <US30YT=RR> edged up 2/32 in price to yield 4.328 percent.

* Despite lingering supply worries, the benchmark 10-year yield is unlikely to rise above 4 percent in the near term as Japanese players are seen picking up Treasuries as Japanese government bond yields stay low. Japanese and Chinese investors are big holders of Treasuries.

* Japanese investors bought a net 1.53 trillion yen ($15.83 billion) of overseas bonds last week, a 4-year high, according to weekly capital flows data released by Japan's Ministry of Finance on Thursday. [JP/CAP] * Japanese banks aggressively bought foreign debt -- mostly US Treasuries -- last week. Japan's buying of Treasuries came as a record $104 billion was sold, showing that strong demand did not only come from foreign central banks.

* Japanese life insurers also picked up Treasuries, though not as much as banks did.

* Treasuries are proving attractive now, with the the yield spread of 10-year Treasuries <US10YT=RR> over 10-year JGBs <JP10YTN=JBTC> staying around 220 basis points, near its widest levels in eight months, while foreign exchange hedging costs are low, market sources said.

* "Ten-year Treasury yields between 3.5 percent and 4 percent are attractive enough to keep us net buyers," said a senior fund manager at a Japanese life insurer.