TREASURIES-Budget deal pushes benchmark yields to 3-month high

Wed Jan 2, 2013 3:58pm EST

Related Topics

* Deal to avert "fiscal cliff" spurs risk-on trade
    * Benchmark yields climb to highest since mid-Sept
    * Worries over debt ceiling seen containing selloff

    By Chris Reese
    NEW YORK, Jan 2 (Reuters) - U.S. benchmark 10-year Treasury
yields hit a more than three-month high on Wednesday after
lawmakers approved a deal that prevented a round of automatic
budget cuts and tax hikes that could have tipped the world's
largest economy into recession.
    The Republican-controlled House of Representatives approved
a bill late on Tuesday that will raise taxes on top earners,
avoiding a "fiscal cliff" of $600 billion in higher taxes and
decreased spending. 
    Relieved investors dumped safe haven assets such as U.S.
government debt to pour money into higher-yielding, riskier
instruments such as equities.
    The passage of the budget deal sparked "a substantial
risk-on move that has Treasuries on the back foot," said John
Briggs, Treasury strategist at RBS Securities in Stamford,
Connecticut.
    Benchmark 10-year Treasuries were trading down
23/32 in price to yield 1.837 percent, up from 1.76 percent late
Monday. Yields touched 1.86 percent on Wednesday, the highest
level since mid-September.
    Thirty-year Treasury bonds were trading 1-21/32
lower in price to yield 3.039 percent, up from 2.95 percent late
Monday. Bond yields were at 3.06 percent early in the session,
also the highest since mid-September.
    Yields may rise further if data, including the closely
watched jobs report for December due out on Friday, show the
U.S. economy is improving.
    The bearish tone in Treasuries on Wednesday was supported by
data from the Institute for Supply Management showing U.S.
manufacturing expanded slightly last month after an unexpected
contraction in November. 
    "Even with all the negative headlines surrounding the fiscal
cliff, we still managed to improve on the month, and this shows
the underlying resilience of manufacturing, which continues to
add modestly to the economy over the course of the year," said
Tom Porcelli, chief U.S. economist at RBC Capital Markets in New
York.
    However, analysts said a massive risk-on selloff in U.S.
debt was unlikely. In addition to further fiscal tightening,
lawmakers must still agree over the next few weeks on raising
the government's borrowing limit.
    "Higher tax rates will bring slower growth going forward,
and (investors) view the recent selloff as a decent opportunity
to add duration," said Tom di Galoma, managing director at
Navigate Advisors LLC in Stamford, Connecticut.  
    The Federal Reserve's loose monetary policy is also expected
to keep yields relatively subdued for a long period, especially
on short-dated paper.
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.