TREASURIES-U.S. 10-year notes rise as budget talks stall

SINGAPORE Wed Dec 19, 2012 10:17pm EST

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SINGAPORE Dec 20 (Reuters) - U.S. 10-year Treasuries edged higher in Asia on Thursday as talks to avoid the U.S. "fiscal crisis" stalled and equities sagged, prompting traders to buy back bonds in the wake of a two-week sell-off.

* Ten-year notes rose about 5/32 in price to yield 1.787 percent, down roughly 1 basis point from late U.S. trade on Wednesday.

The 10-year yield had hit a high of 1.847 percent on Tuesday, its highest level in about two months. That marked a rise of about 28 basis points from a trough of 1.564 percent hit on Dec. 6.

* "Bonds have become pretty cheap, and that seems to be causing some short-covering," said a trader for a U.S. brokerage in Tokyo, adding that a dip in equities was also probably helping to trigger such position squaring in Treasuries.

* In the stock market, S&P 500 index futures and MSCI's broadest index of Asia-Pacific shares outside Japan were both down about 0.2 percent.

* Treasuries had come under pressure earlier this week partly due to signs of progress in talks aimed at avoiding the U.S. "fiscal cliff" of steep tax increases and spending cuts due to take effect early next year.

Hopes for a deal to avoid the "fiscal cliff", which could badly damage the economy, had helped support equities and weighed on Treasuries.

The talks have since stalled, and President Barack Obama and House of Representatives Speaker John Boehner are locked in intense bargaining as a year-end deadline nears.

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