TREASURIES-Prices gain as weak Spanish auction spurs safety bid

Wed Dec 5, 2012 9:08am EST

Related Topics

* Prices gain as weak Spanish auction spurs safety bid
    * Little reaction to employment data, Friday jobs number in
focus
    * Fed to buy up to $5.25 bln in debt due 2021-2022

    By Karen Brettell
    NEW YORK, Dec 5 (Reuters) - U.S. Treasuries gained in price
on Wednesday, erasing losses sustained in Asian trading, after
Spain failed to meet the maximum target at a debt auction,
raising worries that demand for the euro zone sovereign's bonds
was drying up.
    Many economists expect Spain to eventually seek a bailout
from its euro zone partners to cover for a jump in financing
needs next year. 
    Spain sold 4.25 billion euros of bonds compared with a
maximum target of 4.5 billion euros, leading to a sell-off in
its debt markets and lifting assets perceived as safe havens
such as German Bunds and U.S. Treasuries. 
    Price gains were capped however as many investors stayed on
the sidelines amid uncertainty over how U.S. lawmakers will
address a fiscal crunch of spending cuts and tax hikes scheduled
for the new year, which if not addressed are seen likely to hurt
the economy.
    "The markets are paralyzed by the fiscal cliff," said Scott
Graham, head of U.S. government bond trading at BMO Capital
Markets in Chicago.
    Bonds were little moved by data that showed that U.S.
private-sector employers added 118,000 jobs in November, just
shy of economists' expectations, according to ADP National
Employment Report.
    Investors are now closely focused on Friday's payrolls
report for November, which is expected to show that employers
added 171,000 jobs in the month, according to the median
estimate of 92 economists polled by Reuters.
    Reaction to Friday's data, however, may be limited as
traders question the accuracy of the number, which is expected
to be swayed by the effects of superstorm Sandy on heavily
populated states on the U.S. east coast.
    "I think the data right now is ancillary. There is going to
be so much noise around unemployment as a result of Sandy," said
Graham.
    Benchmark 10-year notes were last up 4/32 in
price to yield 1.59 percent, down from 1.61 percent late on
Tuesday.
    The Federal Reserve will buy between $4.25 billion and $5.25
billion in notes due 2021 and 2022 on Wednesday as part of its
Operation Twist program.
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