* 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 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-note 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 had 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 ended flat in price to yield 1.77 percent, 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 2/32 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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