TREASURIES-U.S. 10-year notes fall as stocks rise on budget deal optimism

TOKYO Thu Nov 29, 2012 12:36am EST

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TOKYO Nov 29 (Reuters) - U.S. 10-year Treasuries prices fell on Thursday, taking their cue from rising equities on cautious hope that the U.S. "fiscal cliff" impasse over tax hikes and spending cuts will be resolved in the coming weeks.

* In U.S. trading on Wednesday, bond prices pulled back off session highs after U.S. House of Representatives Speaker John Boehner said he was "optimistic" on reaching a budget deal before the end of the year to avoid a crisis. President Barack Obama later said he hoped he and Congress can reach agreement before Christmas.

* Investors are worried Washington might fail to avert $600 billion worth of tax increases and reduced outlays scheduled to automatically take effect next year, and that the plan's implementation would help drag the U.S. economy back into a recession.

* MSCI's broadest index of Asia-Pacific shares outside Japan rallied 1.1 percent, undermining the appeal of fixed-income assets.

* "For now, rising risk appetite is lifting stocks and weighing on bonds, though a bond sell-off is unlikely as long as the 'fiscal cliff' issue remains unresolved," said a fixed-income fund manager at a Japanese asset management firm.

"Month-end buying will also support Treasuries prices for the rest of this week," he added.

* Yields on 10-year Treasuries rose to 1.643 percent on Thursday in Asian trade from 1.623 percent in late U.S. trade on Wednesday.

* Yields on 30-year Treasuries rose to 2.80 percent from 2.789 percent on Wednesday.

* On the supply side, the Treasury Department will offer $29 billion of seven-year debt later on Thursday, as part of its total of $99 billion this week.

On Wednesday, it sold $35 billion in five-year notes at a high yield of 0.641 percent, and a $35 billion sale of two-year notes on Tuesday met record demand.

* On Wednesday, the Federal Reserve made two separate purchases of Treasuries under its "Operation Twist" programme aimed at lowering long-term interest rates to help the economy.

The Fed bought a total of $1.85 billion of Treasuries maturing in February 2036 through November 2042 in a morning operation, and then purchased $4.57 billion of Treasuries maturing November 2018 through November 2020 on Wednesday afternoon.

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