TREASURIES-Bond prices fall as stocks bid on fiscal hopes

Mon Nov 19, 2012 11:05am EST

Related Topics

* Bond prices fall as stocks regain bid
    * Hopes on fiscal cliff increase risk taking, reduce bond
demand
    * Volumes light ahead of Thanksgiving holiday

    By Karen Brettell
    NEW YORK, Nov 19 (Reuters) - U.S. bond prices fell on Monday
as signs of progress in talks between the Congress and the
administration to resolve a fiscal crisis caused by large,
automatic budget cuts and tax increases boosted demand for
riskier assets including stocks, making safe-haven bonds
relatively less attractive.
    In the past two weeks Treasuries yields have fallen to
two-month lows as investors fled stocks on concerns that U.S.
lawmakers would fail to reach a deal to resolve the $600 billion
"fiscal cliff," significantly dampening economic growth.
    Stocks investors appeared more confident on Monday, however,
after leading Republican and Democrat lawmakers expressed
confidence on Sunday that they could reach a deal, even as they
stuck to their positions. 
    "There have been signs of life. I think the big possibility
to watch for is how much of a recovery we can create in
equities, and then how long that holds," said Jim Vogel, an
interest rate strategist at FTN Financial in Memphis, Tennessee.
    Bonds are largely taking their cues from other markets as
investors wait on new information relating to any economic
effect of recent storm Sandy, the resolution of the fiscal cliff
and before the Federal Reserve's next policy meeting in
December, he said.
    "There's no fundamental bond story at the moment that can be
aggressively traded, which leaves us to react to other markets,"
Vogel said.
    A number of other factors including any renewed concern
about Europe's debt crisis and rising tensions in the Middle
East are expected to keep a bid for bonds, likely limiting yield
increases.
    "There are a lot of variables, I don't think we are going to
go anyplace soon," said Sean Murphy, a Treasuries trader at
Societe Generale in New York.
    There was greater optimism on Monday that Euro zone leaders
will agree to release much-needed aid for Greece.
    European officials are expected to discuss a two-year
funding plan for Athens at a meeting on Tuesday, which would
postpone any longer-term solution until after a September 2013
German general election. 
    Some investors may also be reluctant to take new positions
as risk aversion rises heading into year-end, which could
increase price volatility.
    "There is a reluctance to get involved given how many
factors are influencing the market. The European situation
should be enough to contain prices, but we could see slightly
higher rates in the near term if we get a positive resolution on
any of those fronts," said Murphy.
    Trading volumes are also expected to be light this week with
no important economic releases due and before the U.S.
Thanksgiving holiday on Thursday.
    Benchmark 10-year Treasuries were last down
12/32 in price to yield 1.63 percent, up from 1.58 percent on
Friday. The yields have fallen from 1.75 percent on Nov. 6.
    Thirty-year bonds fell a point in price to yield
2.78 percent, up from 2.73 percent late on Friday.
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