TREASURIES-Prices gain as fiscal worries, Spain drive safety bid
* Optimism tempered on avoiding US fiscal crisis * Greece, Catalonia support safe-haven buying of US debt * Fed set for six Treasuries buybacks this week By Ellen Freilich NEW YORK, Nov 26 (Reuters) - U.S. Treasury prices rose on Monday as fiscal challenges in the United States and political uncertainty in Spain fed investors' appetite for safe-haven assets. The gains followed losses last week in thin holiday trading after signs a deal might be reached to avert the "fiscal cliff" of spending cuts and tax increases -- due to take effect in early 2013 -- allowed the safety bid to dwindle. However, by Monday the optimism on the fiscal cliff talks seemed more tempered, although gains in Treasuries could still be limited by the conviction that if the so-called fiscal cliff can be avoided, U.S. economic growth will safely outpace that of the euro zone and Japan in 2013. "Reports of very little compromise over recent discussions on the 'fiscal cliff' are driving rates lower," said Tom di Galoma, managing director at Navigate Advisors LLC in Stamford, Connecticut. Safe-haven buying also occurred as the European Union "is still sorting out Greece, and Catalonia takes steps towards independence from Spain," he said. Separatists in Catalonia won a large majority in regional elections. A deep recession and high unemployment have fueled the separatist mood in Catalonia, which represents a fifth of Spain's economy, piling political uncertainty on top of Prime Minister Mariano Rajoy's economic problems. Euro zone finance ministers and the International Monetary Fund are also seeking to unfreeze the second bailout package for Greece on Monday, but they will first need to agree on whether some of the official loans to Athens might eventually be forgiven to cut Greek debt. Benchmark 10-year Treasury notes were trading 15/32 higher in price, with their yield dipping to 1.64 percent from 1.69 percent on Friday, while 30-year bonds gained 1-3/32 in price with their yield falling to 2.77 percent from 2.83 percent. Bond prices rose even though the market faces $99 billion of supply this week. The U.S. Treasury Department will sell $35 billion of two-year notes on Tuesday, $35 billion of five-year notes on Wednesday and $29 billion of seven-year notes on Thursday. The Federal Reserve will be a large buyer of Treasuries this week, with six purchases as part of its "Operation Twist" stimulus program, under which it is selling shorter-dated U.S. government debt and using the proceeds to buy longer-dated debt. In the first of such purchases this week , the Fed on Monday bought $1.855 billion of Treasuries maturing February 2036 through November 2042. "The Federal Reserve has scheduled six purchases in long-term Treasuries to take place over the next five days," said Jake Lowery, portfolio manager on the global rates team at ING Investment Management in Atlanta, with $170 billion in assets under management. "Those purchases, combined with demand for bonds coming from political uncertainty in the U.S. and Europe, are driving the rally."