TREASURIES-US 10-year notes dip on hopes for budget deal

SINGAPORE Sun Dec 16, 2012 10:15pm EST

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SINGAPORE Dec 17 (Reuters) - U.S. 10-year Treasuries dipped on Monday, as House of Representatives Speaker John Boehner's offer to accept a tax rate increase for the wealthiest Americans stirred hopes for a deal to avoid a looming fiscal crisis.

* Ten-year Treasuries fell about 6/32 in price to yield about 1.727 percent, up roughly 2 basis points from late U.S. trade on Friday.

The 10-year yield, however, stayed below Friday's peak of 1.749 percent, which was the highest level for the 10-year yield in about a month.

* "Boehner made an offer to (President Barack) Obama, basically caving in on the highest income tax rates... Sounds like they are getting closer to a deal, even though they haven't hit one yet," said a trader for a U.S. brokerage house in Tokyo.

Moves in Treasuries were exaggerated, however, by thin trading volumes, the trader added.

At issue is whether U.S. lawmakers can forge a deal to avoid the "fiscal cliff" of $600 billion in tax increases and spending cuts due to come into effect in early 2013. The risk is that the U.S. economy could fall into recession if such fiscal tightening were to take effect.

News of Boehner's proposal helped drag Treasuries lower, said a trader for a European brokerage house in Tokyo. He cautioned against reading too much into the move, however, saying that the moves were fairly limited.

* Under current law, the 35 percent top U.S. tax rate is scheduled to expire on Jan. 1, and would automatically go to 39.6 percent. Boehner's proposal would allow that rate to rise as scheduled at a threshold of $1 million - putting it back to where it was during the Clinton administration.

Although the White House has not accepted Boehner's gambit, it could push negotiations away from entrenched, ideological positions.

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