TREASURIES-U.S. 10-year notes rally as 'fiscal cliff' hopes fade

Thu Dec 20, 2012 9:09pm EST

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By Lisa Twaronite
    TOKYO, Dec 21 (Reuters) - U.S. 10-year Treasuries rose in
Asia on Friday, with yields moving away from an 8-week high hit
this week, after Speaker of the U.S. House of Representatives
John Boehner conceded that his tax bill designed to help avert
"the fiscal cliff" lacked the votes to pass.
    Boehner said it was now up to President Barack Obama to work
with fellow Democrats in the Senate to hammer out a
deficit-reduction deal that could prevent automatic spending
cuts and tax hikes from kicking in next month. 
    Boehner had pushed a "Plan B" that would have raised taxes
on families with net incomes over $1 million annually while
extending other tax breaks. The White House had threatened to
veto it. The U.S. House of Representatives will adjourn until
after Christmas.
    "Treasuries rose after the 'Plan B' option didn't pass,"
said Ayako Sera, market economist at Sumitomo Trust and Banking.
"The market mood has turned pessimistic, and there's a flight to
quality into fixed-income assets, ahead of the long holiday
weekend."
    Yields on 10-year Treasuries sank to 1.770
percent on Friday in Asian trade, from 1.803 percent in late
U.S. trade on Thursday.
    Earlier this week, the 10-year yield rose to an eight-week
high of 1.847 percent on rising optimism that a U.S. budget deal
was close. 
    On the supply side, Thursday's $14 billion auction of
five-year Treasury inflation protected securities (TIPS)
 met strong demand, fetching a record negative yield
of 1.496 percent. 
    The U.S. Federal Reserve on Thursday bought $1.73 billion of
Treasuries maturing February 2023 through February 2031,
followed by a $7.42 billion sale of its short-dated debt
holdings, as part of its "Operation Twist" stimulus programme
that will wind down next week. 
    On the U.S. data front, separate reports on Thursday showed
sales of existing homes jumped and manufacturing in the
mid-Atlantic region improved.
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