TREASURIES-U.S. bond prices gain slightly in safety bidding

Thu Nov 15, 2012 12:21pm EST

Related Topics

* Benchmark yields just above 10-week low touched on Tuesday
    * Superstorm Sandy pushes weekly jobless claims to
1-1/2-year high
    * No compromise seen soon in government's "fiscal cliff"
debate


    By Chris Reese
    NEW YORK, Nov 15 (Reuters) - U.S. Treasury debt prices rose
slightly on Thursday in safe-haven buying amid worries over a
looming fiscal crisis and the relatively poor overall health of
the U.S. economy.
    Gains were limited, however, as investors were reluctant to
aggressively push yields much lower following a sharp price
rally over the past week.
    Treasuries pared early price losses after the Labor
Department reported a surge in first-time claims for jobless
benefits last week after Superstorm Sandy left tens of thousands
of people out of work. Price losses were pared further after
data from the Philadelphia Federal Reserve Bank showed an
unexpected slump in factory activity in the U.S. mid-Atlantic
region in November due to disruption from Sandy.
    The safe-haven appeal of Treasuries was also supported by
worries that Israeli strikes in the Gaza Strip could turn into a
wider offensive, said Matt Duch, portfolio manager at Calvert
Investments in Bethesda, Maryland.
    "There are the fiscal cliff concerns and the overall
economic backdrop, and then you add in newly relevant Middle
East concerns," Duch said.
    "The Treasuries markets are just a place to park cash. I
don't think anyone has a view long-term that is bullish on
Treasuries, but there is that opportunity to just sit tight and
just kind of let things pass, and when you get greater clarity
maybe you can move back into risk markets."
    Treasuries have been rallying since last week following the
U.S. presidential election, as worries over the outcome of a
pending budget crisis cut investors' appetite for risk.
    If the White House and a divided Congress do not produce a
deal on the federal budget before year-end, the series of 
automatic tax hikes and spending cuts known as the fiscal cliff
will come into effect early in 2013, hitting economic growth.
    President Barack Obama said on Wednesday that Republicans
would have to agree to raise taxes on the wealthy as the first
step in a budget deal. But top Republican lawmakers have been
steadfast in pushing to hold down tax rates for the wealthiest
Americans. 
    Few market players expect a compromise between the Democrats
and the Republicans any time soon, suggesting firm support for
Treasuries in coming weeks.
    A significant rise in Treasury yields was also limited after
the president of the San Francisco Federal Reserve Bank, John
Williams, said late on Wednesday the U.S. central bank would
likely keep buying both mortgage-backed securities and
Treasuries until late 2013.
    The release on Wednesday of minutes of the Federal Reserve
policy meeting in October, in which a number of officials
reckoned the central bank would need to ramp up its bond buying
to help the economy, also gave Treasuries support.
    The minutes showed a number of Fed officials thought the
central bank would need to buy more bonds when its "Operation
Twist" program expires at the end of the year. 
    Benchmark 10-year Treasury notes were trading
3/32 higher in price to yield 1.58 percent, down from 1.59
percent late Wednesday. Benchmark yields touched a 10-week low
of 1.57 percent on Tuesday.
    Superstorm Sandy drove new claims for U.S. jobless benefits
to a seasonally adjusted 439,000, the Labor Department said. It
was highest claims level since April 2011 and well above the
median forecast in a Reuters poll. It was also the biggest
one-week increase in new claims since 2005. 
    The jobless claims report "does suggest quite a weak
payrolls reading for November, but the weakness should be a
temporary thing," said David Sloan, economist at 4Cast Ltd in
New York. "It does suggest the hurricane is going to have a
bigger short-term impact than expected."
    Meanwhile, the Philadelphia Fed said its business activity
index slumped to a reading of -10.7 in November from a reading
of 5.7 the month before. The fall was much steeper than
economists' expectations for a slip to 2.0, according to a
Reuters poll.
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