TREASURIES-Prices ease as investors book profits

Wed Nov 14, 2012 12:15pm EST

Related Topics

* Yields expected to hold near recent lows
    * Market worries about U.S. fiscal crisis, Greek debt
    * 10-year note price resistance seen at yield of 1.54 pct

    By Chris Reese
    NEW YORK, Nov 14 (Reuters) - U.S. Treasury debt prices eased
on Wednesday as investors booked profits from a post-election
rally that was driven by safe-haven buying over concerns about a
looming U.S. fiscal crisis and Europe's debt woes.
    U.S. Treasuries briefly pared price losses earlier after
data showing an unexpected drop in producer prices and a
larger-than-expected dip in retail sales in October. Price
losses were also pared later in the morning as stocks fell.
    "We seem to open up a little weaker in Treasuries only to
find equities lose ground and Treasuries start to grind tighter
or at least hold minimal losses," said Wilmer Stith,
co-portfolio manager of the Wilmington Broad Market Bond Fund in
Baltimore. 
    Ten-year Treasury notes were trading 5/32 lower
in price to yield 1.61 percent, up from 1.59 percent late on
Tuesday. The yield on Tuesday touched 1.57 percent, which was
the lowest in 10 weeks.
    "It seems the 10-year wants to test a (technical) resistance
level at 1.54 percent," Stith said.
    Yields were not expected to stray far from their lowest
levels since September with price support from concerns over the
so-called fiscal cliff of $600 billion in U.S spending cuts and
tax increases set to start in January that could send the
economy back into recession.
    So far, Democrats and Republicans have each stood their
ground since last week's presidential and congressional
elections with disagreements over taxes preventing a compromise
on deficit reduction.
    Some analysts expect a deal will be reached before the end
of the year.
    "I am of the opinion the administration and Congress will
prevent a fiscal-cliff disaster form occurring, that the
negative impact to GDP at the end of the day is going to be in
the much smaller arena of 0.5 percent as opposed to the much
larger number that some people are bracing for, and if that
happens that would provide a reason for higher Treasury yields,"
Stith said.
    Others said Treasuries are already pricing in an expectation
the budget crisis will be avoided.
    "The market for the most part is factoring in that it won't
happen; that there will be some resolution; something that
pushes out further the time line or some sort of compromise --
there is a very small percentage priced in that it will actually
happen," said Kenneth Naehu, head of fixed income at Bel Air
Investment Advisors in Los Angeles.
    Concerns in Europe as the International Monetary Fund and
the European Union failed to agree on long-term budget goals for
Greece also kept markets edgy, despite the growing likelihood
the country would receive the aid payments due this year
.
    Separately, data on Wednesday showed U.S. retail sales fell
in October for the first time in three months. Superstorm Sandy,
which hit the northeastern United States on Oct. 29, slammed the
brakes on automobile purchases, suggesting a loss of momentum in
spending early in the fourth quarter. 
    U.S. producer prices also unexpectedly fell last month as
the cost of energy and motor vehicles tumbled, according to a
government report on Wednesday that showed little inflation
pressures in the economy.
    Investors are looking ahead to minutes from the Federal
Reserve's October policy meeting, to be released on Wednesday
afternoon, for any clues as to whether the central bank intends
to buy more Treasuries once its "Operation Twist" stimulus
program expires at the end of December.
    In the meantime, 30-year Treasury bonds were
trading 17/32 lower in price to yield 2.75 percent, up from 2.73
percent late Tuesday.
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