TREASURIES-Prices dip on hopes budget crisis can be avoided

Mon Nov 19, 2012 3:44pm EST

Related Topics

* Lawmakers confident "fiscal cliff" will be avoided
    * Investors also keep an eye on Europe's debt woes
    * Volumes light ahead of Thanksgiving holiday

    By Chris Reese
    NEW YORK, Nov 19 (Reuters) - U.S. bond prices fell on Monday
as signs of progress in government talks to avoid a looming
budget crisis boosted demand for riskier assets like stocks and
reduced the attractiveness of safe-haven bonds.
    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" of spending cuts and tax increases that start to
kick in next year and which many fear would send the U.S. back
into recession.
    Stocks rose 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.
 
    "Democratic and Republican policymakers are actively
negotiating over the fiscal cliff, as investors watch and wait
with bated breath. They seem to be making progress, or so they
suggest in their public comments," said Charles Lieberman, chief
investment officer at Advisors Capital Management LLC in
Hasbrouck Heights, New Jersey, adding "until the situation is
resolved, markets are likely to remain volatile."
    Stocks traded over 1 percent higher and Treasuries fell,
with benchmark 10-year notes losing 7/32 in price to
yield 1.61 percent, up from 1.58 percent late Friday. Benchmark
notes posted the biggest single-day rise in yield in nearly two
weeks.
    Treasuries were largely taking cues from other markets as
investors wait on new information relating to the economic
impacts of recent storm Sandy, the wrangling over the fiscal
cliff and ahead of the Federal Reserve's next policy meeting
Dec. 11-12.
    A number of other factors including ongoing concern over
Europe's debt crisis and rising tensions in the Middle East are
expected to keep a bid for bonds, likely limiting yield gains.
    "There are a lot of variables, I don't think we are going to
go any place 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 were also reluctant to take new positions as
risk aversion rises heading into year-end.
    "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 were below average on Monday and are
expected to continue that way this week with little in the way
of top-tier economic releases on tap, and ahead of the U.S.
Thanksgiving holiday on Thursday.
    The Treasuries market will be closed on Thursday and will
close early on Friday at 2 p.m. EST (1900 GMT).
    Thirty-year bonds on Monday traded 16/32 lower
in price to yield 2.76 percent, up from 2.73 percent late
Friday.
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