TREASURIES-Bonds little changed amid U.S. budget stalemate

Tue Dec 4, 2012 9:13am EST

Related Topics

* Corporate debt supply mitigates "fiscal cliff" jitters
    * Fed to buy $1.50 bln to $2.25 bln in long-dated Treasuries
    * Ten-year note yield finds support with 100-day MA

    By Richard Leong
    NEW YORK, Dec 4 (Reuters) - U.S. government debt prices were
little changed on Tuesday as most investors kept to the
sidelines in the absence of progress on the budget negotiation
in Washington, that is seen as critical to avert a fiscal crisis
and a U.S. recession. 
    Competition from corporate bond supply and some early
preparation for next week's federal debt sales mitigated
concerns about the federal budget talks, analysts said.
    "When things are drifting like this, we see some money
gravitating to investment-grade corporate bonds," said Jim
Vogel, interest rate strategist with FTN Financial in Memphis,
Tennessee.
    Analysts expected companies to sell $25 billion in debt this
week, according to IFR, a unit of Thomson Reuters. 
    Benchmark 10-year Treasury notes were up 1/32 
in early trading with their yields at 1.616 percent. The 10-year
yield has found chart support at its 100-day moving average at
1.65 percent, according to Reuters data.
    U.S. Treasuries prices have moved 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
Congressional Republican lawmakers to avoid the "fiscal cliff."
    The absence of a budget deal before year-end would cause a
fiscal contraction as a series of automatic tax increases and
spending cuts worth $600 billion are implemented, economists
say.
    On Monday, the White House dismissed a "fiscal cliff"
proposal from congressional Republicans that included tax
reforms and spending cuts, saying it did not meet President
Barack Obama's pledge to raise taxes on the rich.
 
    Risk of a recession from failed budget talks will likely
cause the Federal Reserve to cling to an ultra-loose monetary
policy in an attempt to support an already wobbly economy.
    Fed policy-makers will meet next Tuesday and Wednesday,
where they are widely expected to decide whether they will
pursue further bond purchases. 
    The Fed has been buying a combined $85 billion in Treasuries
and mortgage-backed securities a month.
    Its Treasuries purchases have been linked to "Operation
Twist" that will expire at the end of December.
    As of a part of "Operation Twist," the Fed will buy $1.50
billion to $2.25 billion in Treasuries that mature in Feb 2036
to Nov 2042 at 11 a.m. (1600 GMT).
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