TREASURIES-Bond prices slip on Spain aid, Chinese data

Mon Dec 3, 2012 11:47am EST

Related Topics

* Spain seeks EU aid for its wobbly banking sector
    * Chinese manufacturing regains growth after a year
    * ISM U.S. factory sector unexpectedly contracts in Nov
    * St Louis Fed chief sees Fed buying bonds after Twist-WSJ


    By Richard Leong
    NEW YORK, Dec 3 (Reuters) - U.S. Treasuries prices fell on
Monday after news that Spain is seeking help for its troubled
banks and better-than-expected data on Chinese manufacturers
reduced safe-haven demand for  less-risky government debt.
    Traders also blamed the market's decline on investors
shifting cash into stocks from bonds in reaction to a research
report from Goldman Sachs, which upgraded its short-term global
outlook on equities. 
    "You got the Spain news which was expected but it was still
welcomed news for risky assets. You also had some pretty good
Chinese data. The (bond) market is a little fatigued," said
Jason Rogan, director of Treasuries trading at Guggenheim
Partners in New York.
    The market's losses were limited by nagging worries about
the lack of progress in budget talks in Washington and the bumpy
debt negotiation between Greece and its lenders.
    Benchmark 10-year Treasury notes were 4/32
lower, yielding 1.625 percent, up about 1.9 basis points from
late on Friday. The 10-year yield flirted with its 100-day
moving average of 1.6519 percent earlier following an
8-basis-point decline last week, according to Reuters data.
    In November, Treasuries earned a middling 0.52 percent
return, lagging junk and municipal bonds, according to Barclays.
    The three major Wall Street indexes were narrowly mixed in
midday trading after opening higher. 
    The initial selling in Treasuries stemmed from data showing
Chinese manufacturing returned to growth in November for the
first time in over a year. 
    Bonds' losses grew on news that Spain formally requested the
disbursement of 39.5 billion euros ($51.4 billion) of European
funds to recapitalize its crippled banking sector.
 
    Even with Monday's fall, U.S. bond prices have bounced in a
tight range since the U.S. presidential election nearly a month
ago on the likelihood of a contentious process between President
Barack Obama and Republican lawmakers to avoid the "fiscal
cliff."
    The absence of a budget deal before year-end would cause a
fiscal contraction -- a series of automatic tax hikes and
spending cuts worth $600 billion -- and possibly tip the U.S.
economy into a recession, economists say.
    U.S. business executives have cut spending and hiring on
possible fallout from a failure to reach agreement.
    The Institute for Supply Management said its manufacturing
index unexpectedly fell in November to the lowest level since
July 2009. The report contradicted data released earlier by
Markit  showing factory activity grew modestly last month.
  
     
 
    Tepid growth and high unemployment will likely cause the
Federal Reserve to stick with its ultra-loose monetary policy. 
    "It has set a very high bar to stop easing. We have to see a
substantial improvement in the labor market, and we haven't seen
that," said Stephen Stanley, chief economist at Pierpont
Securities in Stamford, Connecticut.
    The U.S. central bank is widely expected to decide at its
policy meeting next week that it will continue to buy
longer-dated government debt in 2013 in an effort to hold down
mortgage rates and other long-term borrowing costs to support
the economy. Its "Operation Twist" program, which involves
selling short-dated Treasuries and buying $45 billion a month in
longer-dated issues, will expire at the end of the month.
    St. Louis Fed President James Bullard told the Wall Street
Journal on Monday that the Fed could replace "Twist" with a
smaller $25 billion per month outright purchases in Treasuries.
 
    The Fed sold $7.828 billion in short-dated issues for
Operation Twist after buying $16.8 billion in long-dated debt
last week.
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