TREASURIES-Prices gain modestly on worries over fiscal crisis

Tue Nov 27, 2012 3:56pm EST

Related Topics

* U.S. budget concerns underpin bids for bonds
    * U.S. sells $35 billion in new two-year notes
    * Traders shrug off U.S. durables, consumer data


    By Chris Reese
    NEW YORK, Nov 27 (Reuters) - U.S. Treasury debt prices rose
for a second day on Tuesday as persistent worries over the lack
of progress in negotiations in Washington to avert a fiscal
crisis drove safe-haven bidding for U.S. government debt.
    Gains were limited however, with investors reluctant to push
prices significantly higher while the government sells $99
billion of new debt this week, and yields held near the middle
of a range dating back to early August.     
    If President Barack Obama and federal lawmakers cannot reach
a budget compromise, a series of automatic tax hikes and
spending cuts will begin in early 2013 that may reduce the
budget deficit, but also could tip the world's biggest economy
back into recession.
    Fears of a fiscal crisis bolstered lower-risk Treasuries,
and benchmark 10-year notes traded 7/32 higher in
price to yield 1.64 percent, down from 1.67 percent late Monday.
The yield is only a few basis points off the middle of a range
of 1.54 to 1.89 percent that has held since early August.
    The bond market retraced overnight losses linked to news
that international lenders agreed to a debt relief deal for
Greece to obtain more financial aid to avoid a messy default.
 
    Analysts said the early selloff in bonds faded when traders
grew skeptical over the lack of details on how Greece will carry
out budget reforms needed to meet its new debt targets.
    "Today's (economic) data and Greek aid package had minimal
impact on the market with Treasuries continuing to be stuck in
very tight ranges," said Justin Lederer, Treasury strategist at
Cantor Fitzgerald in New York.
    "The most notable market action was the small up-tick
mid-morning with equities trading into the red and the Fed's
$1.9 billion, 10-to-20 year sector purchase."
    Much of the day's trading was short-term plays driven by
this week's Fed purchases of longer-dated debt and the
government's auctions of $99 billion in short-to-medium-term
supply, analysts said.
    The Treasury sold $35 billion of two-year notes on Tuesday
with solid bidding producing a high yield of 0.27 percent.
 
    The Treasury Department will sell $35 billion in five-year
notes on Wednesday and $29 billion in seven-year debt on
Thursday. 
    Meanwhile, the Federal Reserve bought $1.9 billion in
Treasuries due in February 2023 through May 2030 as part of its
Operation Twist stimulus program. 
    The U.S. central bank could buy up to $15 billion in federal
debt the rest of the week in four more rounds of Operation Twist
purchases.
    Uneasiness over a possible fiscal crisis overshadowed
somewhat better-than-expected data on the U.S. economy. Many
economists played down the significance of the numbers since
some indicators were measured before superstorm Sandy pummeled
the Northeastern United States a month ago, disrupting business.
    Durable orders came in unchanged in October, less weak than
a 0.6 percent fall predicted by economists. 
    Home prices in 20 major U.S. cities grew 0.4 percent in
September, reinforcing the view of an improving real estate
sector, the Standard & Poor's/Case-Shiller report showed, while
the Conference Board said Americans' optimism on the economy
rose to its highest in more than four years in November.
    Portfolio adjustments related to corporate debt issuance
also supported the Treasuries market, said Rick Klingman,
managing director of Treasury trading at BNP Paribas in New
York.
    "We have numerous corporate deals that are pricing this
afternoon and a lot of them are swapped, so that is bringing
some buying into Treasuries," he said.
    Thirty-year bonds traded 10/32 higher in price
to yield 2.79 percent, down slightly from 2.80 percent Monday.
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