TREASURIES-Prices rise as fiscal worries, Spain drive safety bid
* Optimism tempered on avoiding U.S. fiscal crisis * Greece, Catalonia support safe-haven bid for U.S. debt * Fed set for six Treasuries buybacks this week By Chris Reese 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 U.S. "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 was more tempered, although gains in Treasuries could be limited by the conviction that if the fiscal cliff can be avoided, U.S. economic growth will safely outpace that of the euro zone and Japan in 2013. "It appears that the bond market is not convinced that the fiscal cliff is in the rearview mirror," said Kevin Giddis, head of fixed income capital markets at Morgan Keegan in Memphis, Tennessee. Treasuries began the day lower with some safe-haven buying after separatists in Spain's 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 were also seeking to unfreeze the second bailout package for Greece on Monday, but they must first agree on whether some of the official loans to Athens might eventually be forgiven to cut Greek debt. Safe-haven buying occurred because the European Union "is still sorting out Greece, and Catalonia takes steps towards independence from Spain," said Tom di Galoma, managing director at Navigate Advisors LLC in Stamford, Connecticut. Benchmark 10-year Treasury notes traded 10/32 higher in price, with their yield dipping to 1.64 percent from 1.69 percent on Friday. Benchmark yields gained over 10 basis points in trading last week, which was shortened by the Thanksgiving Day holiday on Thursday. "Today's Treasury market rebound is a breath-catching exercise after four sessions where rates rebounded off of range resistance," said William O'Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut. "Indeed, I am reasonably confident that we'll test the 1.75 percent level in 10's in the coming days with a real risk that we revisit range supports in 10's (at 1.85 percent) in the coming few weeks," ODonnell said. Bond prices rose on Monday 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." Thirty-year Treasury bonds traded 21/32 higher in price to yield 2.80 percent, down from 2.83 percent on Friday.
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