TREASURIES-U.S. yields fall on fiscal worries, Italian politics

LONDON Mon Dec 10, 2012 6:24am EST

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LONDON Dec 10 (Reuters) - U.S. bond yields fell on Monday on concerns over protracted budget negotiations in Washington, political rumblings in Italy and expectations for further monetary policy easing by the Federal Reserve.

* President Barack Obama and Republican Speaker of the House of Representatives John Boehner failed to reach an agreement on Sunday on ways to stop large-scale, automatic fiscal tightening from kicking in next year.

* Economists fear the "fiscal cliff" of $600 billion worth of tax hikes and spending cuts could send the U.S. economy back into recession and drag the rest of the world with it. Lawmakers only have a few weeks left to try to avert it.

* In Italy, Prime Minister Mario Monti said on Saturday he would resign once the budget for 2013 was approved. Monti was trusted by investors to bring down Italy's huge debt and is credited for stabilising the country's bond markets.

* The announcement came after former Prime Minister Silvio Berlusconi's party withdrew support for Monti last week and he said he could run to become a premier for a fifth time.

* This raised fears Monti's successor may not continue his economic reforms and Italy may come to the forefront of the euro zone debt crisis again.

* The uncertainty boded well for assets perceived as safe-havens. U.S. 10-year T-note yields fell 2.4 basis points to 1.5993 percent. T-note futures rose 7/32 to 133-25/32.

* We haven't seen much progress on the fiscal cliff over the weekend ... and the Monti/Berlusconi story is playing a role as well," Rabobank strategist Philip Marey said.

* A better-than-expected November jobs report on Friday did little to alter expectations that the U.S. Federal Reserve is likely to muster some additional bond buying plans at its two-day meeting which will end on Wednesday.

* "Most people anticipate it (more stimulus). The logic is very simple ... I don't think the Fed wants to add a monetary cliff to the fiscal cliff," Marey said. (Reporting by Marius Zaharia/ editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)

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