TREASURIES-Greek, fiscal cliff concerns lift U.S. bonds

LONDON Tue Nov 13, 2012 5:21am EST

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LONDON Nov 13 (Reuters) - U.S. Treasury debt prices rose on Tuesday on investor concern about a delay in payment of an aid tranche to debt-stricken Greece and a potential U.S. fiscal crisis.

Treasuries extended last week's gains, which followed President Barack Obama's re-election, as investors fret about political brinkmanship by Democrats and Republicans over $600 billion in spending cuts and tax hikes due to come into effect next year and which could send the economy into recession.

U.S. lawmakers have seven weeks to hammer out a compromise to avoid the so-called "fiscal cliff".

Greece is also at the forefront of investors' minds again. A euro zone finance ministers' meeting on Monday gave Athens two more years to make cuts demanded of it but held off disbursing more aid as the euro zone and IMF clashed over a longer-term target date to shrink the country's debt pile.

"Greece is not going to be solved any time soon. The bigger problem as usual in Europe is you have so many competing voices. But as long as you have this uncertainty Treasuries are going to do OK," a trader said.

"Bigger picture, the (Treasury) market is probably at risk of some positive developments, if there's some easing of the political deadlock in the U.S. but again I don't expect anything to be resolved any time soon. As long as the fiscal cliff remains an issue that's negative for business and equities and positive for bonds."

Yields on 10-year Treasuries fell to 1.586 percent on Tuesday from 1.613 percent in late U.S. trade on Friday. Yields on 30-year T-bonds eased to 2.72 percent from 2.751 percent.

There was no U.S. trading of Treasuries on Monday due to the Veterans' Day holiday.

President Obama on Friday invited congressional leaders to the White House to start negotiating a deal, vowing to veto any bill that would extend tax cuts for the top 2 percent of wage earners.

"Until the signs become clearer that current hopes of the fiscal cliff being resolved can crystallise into a hard agreement, the progress to a markedly higher yield environment will continue to be delayed," Lloyds strategists said in a note.

They pointed to the muted response in Treasuries last week to better-than-expected data including Friday's consumer confidence numbers as fiscal crisis worries held sway and predicted Treasuries would remain in demand, squeezing yields lower, for as long as the uncertainty continues.

"Such a backdrop is not expected to dissipate anytime soon and, given the medium-term outlook, which encompasses an expected real money interest to reset/add to an underlying short bias, the clear pain trade would be a further squeeze to yet lower yield levels," Lloyds said.

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