TREASURIES-U.S. yields steady; eyes on storm-hit payrolls

LONDON Fri Dec 7, 2012 7:02am EST

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LONDON Dec 7 (Reuters) - U.S. Treasury yields were broadly steady on Friday, with investors reluctant to place big bets before key jobs data and as an impasse on U.S. bduget talks continued.

* U.S. 10-year bond yields were flat at 1.58 percent but remained near three week lows as concerns over the United States' ability to avert a fiscal crisis early next year favored safe-haven bonds.

* "Unless there's a really weak (jobs) number, I don't think the market is going to break this 1.65-1.57 (percent) range, so I think it could be a pretty dull session," one trader said.

* Non-farm employment is forecast to have increased by 93,000 last month after advancing 171,000 in October, according to a Reuters survey of economists.

* But economists said that slowdown would reflect the impact from Superstorm Sandy that battered the East Coast of the United States in late October and, because of this one-off factor, market reaction to the data would be limited.

* "We suspect this set of payroll numbers may be less market sensitive than usual, largely because markets are uncertain about the impact from the Superstorm," Philip Shaw, chief economist at Investec said. "Any reasonable divergences away from consensus will be explained by the effect of the hurricane."

* Uncertainty over whether U.S. lawmakers will agree on a deal to avert spending cuts and tax increases due to be triggered in early 2013 has provided safe-haven debt with an underlying bid, even as many in the market expect a deal to be reached at the eleventh hour.

* The White House and Republicans in Congress dropped hints that they had resumed low-level private talks on breaking the stalemate.

* "We have taken a view that the fiscal cliff will probably be averted. Whilst the headlines imply that there is no progress, what seems to be happening behind scenes is a fracturing of the Republican party and therefore a better chance of an agreement over the next week," Shaw added.

* He said they were advising clients to be positioned for "risk-on", meaning favoring equities over Treasuries.

* Borrowing costs were flat across maturities, with five-year bonds yielding 0.60 percent and thirty-year bonds yielding 2.77 percent.

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