TREASURIES-Prices flat as profit-taking offsets month-end buying

Fri Nov 30, 2012 3:54pm EST

Related Topics

* Benchmark yields end the week 7 basis points lower
    * "Fiscal cliff" worries underpin support for bond prices
    * Consumer, factory data support view of fragile U.S. growth


    By Chris Reese
    NEW YORK, Nov 30 (Reuters) - Benchmark U.S. Treasury debt
prices were little changed on Friday as profit taking from four
days of price gains was offset by safe-haven bidding on anxiety
about the lack of progress in budget talks in Washington.
    The market has been volatile as investor sentiment changes
on whether U.S. President Barack Obama and Congress will reach a
timely budget compromise to prevent a series of tax increases
and spending cuts from phasing in next year.
    This $600 billion fiscal contraction, dubbed the "fiscal
cliff", could cause a U.S. recession, according to economists,
and market players have bought and sold Treasuries in reaction
to recent public remarks from leading Democratic and Republican
lawmakers.
    Benchmark 10-year Treasury notes rose for a fifth day on
Friday, albeit very marginally. Ten-year notes last
traded 2/32 higher in price with the yield little changed from
late Thursday at 1.62 percent.
    Benchmark yields have dipped by seven basis points in
November for the largest monthly fall in yield since July. On
the week, yields also fell by seven basis points for the largest
weekly dip since the first full week of November.    
    For the past week, "the essence of the matter is, of course,
the fiscal cliff negotiations which seem to be going nowhere in
a hurry," said David Ader, head of government bond strategy at
CRT Capital in Stamford, Connecticut, adding there is "a scary
sense that both sides remain very far apart which leaves
uncertainty close at hand."
    Obama, a Democrat, on Friday said a "handful of Republicans"
in the House of Representatives were holding up legislation to
extend tax cuts for middle-class Americans in order to try to
preserve them for the wealthy. 
    He spoke during a visit to a factory in Pennsylvania in an
effort to press his case for raising taxes on the wealthy to
narrow the deficit.
    The budget standoff is exacerbating a fragile economic
backdrop where growth is still weak and unemployment remains
historically high, analysts said.
    "If we don't get a quick resolution, each day it will add a
bid to the Treasuries market," said Wilmer Stith, co-portfolio
manager of the Wilmington Broad Market Bond Fund in Baltimore.
    Government data on Friday showed Americans cut back spending
for the first time in five months in October, while a private
report showed business activity in the upper Midwest region
barely grew in November. 
    A wobbly economy together with the risk from the "fiscal
cliff" will likely cause the Federal Reserve to cling to its
ultra-loose monetary policy, analysts said.
    The Fed bought $1.85 billion in Treasuries that mature in
Feb. 2036 through Nov. 2042, which was its latest purchase for
'Operation Twist.' This program due to expire at year-end was
intended to lower interest rates in an effort to support the
economy. 
    Overall, the Fed bought about $16.77 billion of longer-dated
Treasuries in six operations this week, which some market
players said helped to bolster Treasuries prices this week.
    Month-end position-squaring also lent support to Treasuries
prices, as some bond fund managers matched month-end duration
changes on their benchmark Treasuries indexes. This typically
involves the purchases of longer-dated bonds.
    Thirty-year Treasury bonds on Friday traded 8/32
lower in price to yield 2.81 percent, up slightly from 2.80
percent late Thursday.
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