TREASURIES-U.S. bonds dip; investors focus on U.S. budget talks

LONDON Thu Dec 27, 2012 6:43am EST

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LONDON Dec 27 (Reuters) - U.S. Treasury prices fell on Thursday, as investors focused on last-ditch efforts by U.S. lawmakers to avoid major fiscal tightening early next year.

* Ten-year U.S. Treasury yields rose 1.9 basis points to 1.77 percent, while 30-year yields were up 2.6 bps at 2.95 percent.

* President Barack Obama will try to revive budget crisis talks - which stalled last week - when he returns to Washington on Thursday after cutting short his Christmas holiday, but the White House and Republicans are still far apart.

* "As we approach the end of the (year), we could get somewhat lower, something like 1.70 or 1.65 percent," said Philip Marey, strategist at Rabobank, referring to the 10-year yield.

* "Still, the big market panic is not there yet. I think we will get there if we don't get a deal in the middle of January," Marey said.

* Investors had been hoping that U.S. lawmakers would achieve a deal before Christmas or the end of the year to stop the automatic triggering of a bout of tax hikes and spending cuts in early 2013. As time runs out, there are still some investors clinging onto hopes that some form of compromise will eventually be struck early next year.

* "It's all about the fiscal cliff and we are just not going to have any clarity on that, so I think we stay in a reasonably well-defined range between 1.82 and 1.70 percent," one trader said.

* But he added that the fact that 10-year yields were consistently closing above a 200-day moving average of 1.76 percent was "probably a bearish development for bonds, as in yields might move higher."

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