TREASURIES-U.S. bond yields inch lower before budget talks

LONDON Fri Dec 28, 2012 6:12am EST

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LONDON Dec 28 (Reuters) - U.S. government bond yields edged down on Friday as investors preferred to hold safe haven assets before a last-chance round of negotiations to avoid a fiscal crisis next year.

* President Barack Obama and lawmakers plan another round of talks before a New Year's deadline to prevent the economy from facing a "fiscal cliff" of tax hikes and spending cuts that economists fear could tip the United States back into recession.

* Lawmakers were divided on the odds of success, with a few expressing hope, some talking as if they had abandoned it and a small but growing number suggesting Congress might try to stretch the deadline into the first two days of January.

* "(The fiscal cliff) is the only game in town," one trader said. "They have a meeting today and nobody knows what's going to happen ... so you have to stay reasonably risk averse."

* Ten-year T-note yields were last 1 basis point lower at 1.7234 percent.

* Although thin volumes raised questions about the validity of the signal, a dip below the 200-day moving average in 10-year yields - last at 1.7450 percent - could point to further falls, some traders said.

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