TREASURIES-Prices end year lower as fiscal deal seen near

Mon Dec 31, 2012 2:47pm EST

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* Treasuries prices end lower as fiscal deal seen closer
    * 10-year ylds end slightly lower than in 2011, 30-yr ylds
higher
    * Fed will buy $45 bln in Jan in new quantiative easing
program

    By Karen Brettell
    NEW YORK, Dec 31 (Reuters) - U.S. Treasury debt prices eased
on Monday with long, 30-year bonds falling over a point in price
as lawmakers in Washington came closer to reaching an agreement
to avert the "fiscal cliff."
    Treasuries have gained in the past two weeks as worries that
tax increases and spending cuts due to kick in this week will
harm economic growth.
    With a deal closer to getting done, Treasuries are expected
to sell off as investors return to riskier assets including
stocks on hopes economic growth will gain momentum.
    "Things look a lot closer to something getting done than we
previously thought, so the back end of our market is trading a
little heavy," said Rick Klingman, managing director in
Treasuries trading at BNP Paribas in New York.
    The move left benchmark 10-year Treasuries notes yields
 ending the year only marginally lower than where
they ended a year earlier on the last trading day of 2012.
    The notes ended the day down 14/32 in price to yield 1.76
percent, down from 1.88 percent at the end of 2011.
    Thirty-year bonds fell 1-16/32 in price to yield
2.95 percent, up from the 2.89 percent where they had ended
2011. 
    While a deal seemed closer, some market participants were
still wary that there will be a near-term resolution to the
problem of fixing the deficit and resolving differences over the
tax code and government spending.
    "At some point they will do something, but I don't think
they are going to do enough that the whole debate is behind us,"
said Lou Brien, market strategist at DRW trading in Chicago.
    "Given the fiscal state of the country, taxes will be higher
and spending lower to some degree, that in and of itself is not
friendly to the economy," he said.
    President Barack Obama said on Monday that a deal was within
sight, but that there was more to be done, citing the need to
balance spending cuts.
    The market is likely to remain focused on the "fiscal cliff"
at least through the end of this week.
    "Nothing the president said here this afternoon is going to
really have a permanent mark on the market until we actually get
something through both houses We're actually pointing toward
Thursday as the day that people will be back," said Jim Vogel,
interest rate strategist at FTN Financial in Memphis, Tennessee.
    U.S. economic data is also likely to come back into focus
with the closely watched payrolls employment report due on
Friday.
    "For the next week payrolls and Washington are the two main
drivers of the market," said BNP's Klingman.
    Employers are expected to have added 145,000 jobs to their
payrolls in December, according to the median estimate of
economists polled by Reuters.
    Treasury bill rates also continued to fall on Monday, with
some near-term maturities trading at negative yields, on strong
demand from investors tidying balance sheets for year-end.
    The Federal Reserve also said on Monday that it will buy $45
billion in debt maturing from 2017 to 2042 in January as part of
its new quantitative easing program meant to reduce long-term
borrowing rates and stimulate the economy.
    The Treasury market closed early at 2 p.m. EST (1900 GMT) on
Monday ahead of the New Year's Day holiday on Tuesday.
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