TREASURIES-T-notes edge higher, look set to remain in demand

LONDON Fri Nov 23, 2012 6:48am EST

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LONDON Nov 23 (Reuters) - U.S. bond prices inched higher on Friday as bond investors opted to hold low risk assets over the weekend as they wait for news on the euro zone and with U.S. budget negotiations to provide longer-term support.

* U.S. Treasury futures were 3/32 higher at 133-31/64, rising in line with German Bunds over the course of the European session.

* Even as equities and the euro posted small gains in anticipation of a deal to provide aid to Greece next week, bond investors took a more cautious approach, eyeing Sunday's potentially disruptive regional elections in Spain.

* "I believe a Greek deal is in this price and we've moved on, and Spain is next. The Catalan elections will be closely watched," a London-based Treasuries trader said.

* Spain is struggling to contain its debt problems and elections in its Catalonia region, where a secessionist movement has gathered support, could undermine the country's stability and spook investors.

* "I bought some (Treasuries) this morning and I'm a dip buyer from here," the trader said.

* Treasury prices are likely to remain at the whim of investor perceptions of progress in U.S. cross-party talks to avoid the 'fiscal cliff' of $600 billion of spending cuts and tax hikes due early next year.

* U.S. debt prices tumbled at the start of the week when politicians voiced their willingness to compromise and avoid the crunch of recession-inducing cutbacks, but a deal remains a long way off.

* "It's easy to say you have good intentions at the start of the negotiating process, but we are bound to have some disappointments along the way... we will see some safe haven flow re-emerge in the coming weeks before we get that deal," said Philip Marey, strategist at Rabobank in Utrecht.

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