TREASURIES-US prices flat, trading volume plummets before Christmas

Mon Dec 24, 2012 1:12pm EST

Related Topics

* Traders focused on U.S. fiscal worries
    * U.S. bond market closes early, to be shut on Tuesday
    * Bond prices holding in tight range into year-end


    By Karen Brettell
    NEW YORK, Dec 24 (Reuters) - Most U.S. government debt
prices were little changed on Monday in light volume though the
bonds continued to benefit from a safety bid on fears that U.S.
lawmakers will fail to avert a package of automatic tax hikes
and spending cuts that are set to take effect next year.
    Treasuries have benefited from fears that increasingly
divided lawmakers will fail to resolve the impending fiscal
crunch, which threatens to severely dampen economic growth.
    The negotiations are expected to dominate trading over the
coming weeks, and analysts expect Treasuries yields would spike
if a deal is reached as most investors would then focus on what
they say could be an improving economy.
    "Everyone is just watching Washington and what's going on
there," said Justin Lederer, Treasury strategist at Cantor
Fitzgerald in New York.
    Federal Reserve Chairman Ben Bernanke said in November that
2013 could be "a very good year" for the U.S. economy if a deal
to avert a fiscal crisis is reached. Analysts say benchmark
10-year notes yields may be trading as much as 20 basis points
below fair value because of concern over it.
    The budget negotiations have stopped as U.S. President
Barack Obama and Congress are on a holiday break. 
    A new program of Treasuries purchases, however, are likely
to cap any yield increases as the Fed aims to keep long-term
borrowing rates low in an effort to stimulate the economy.
    The Fed will buy bonds on Thursday and Friday as part of the
its Operation Twist program, which involves buying long-term
debt and funding the purchases with sales of short-term notes.
    The Fed will replace this program with outright bond
purchases ranging from five-years to 30-years next year.
    It will buy up to $5.25 billion in notes due 2018 and 2020
on Thursday and up to $5.25 billion in notes due 2021-2022 on
Friday as part of Twist. 
    Trading volumes are expected to remain light this week
because many investors have closed their books for year-end and
are unwilling to enter new positions until next year.
    There was also little impetus for investors to change their
bond positions without fresh U.S. economic data.
    The U.S. bond market has an early close at 2 p.m. (1900 GMT)
on Monday, an hour after Wall Street. U.S. and most European
markets will be shut on Tuesday, while major Asian markets will
be open.
    "The markets are dead. Those traders who are working are
making sure positions don't get out of hand due to thin
trading," said Lou Brien, market strategist at DRW Trading in
Chicago.
    Treasuries trading volume was roughly a fifth of its average
daily turnover, according to bond broker ICAP.
    Benchmark 10-year notes were last 1/32 higher in
price to yield 1.77 percent, little changed from late on Friday
after reaching an eight-week high last week near 1.85 percent.
The 10-year yield has held in a range of 1.60 to 1.90 percent
since late summer.
    Thirty-year bonds fell 1/32 with a yield of 2.94
percent, after closing on Friday at 2.93 percent. Last Tuesday,
the 30-year yield broke above 3 percent for the first time since
late October on optimism over a coming fiscal pact.
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