TREASURIES-Prices up on weaker housing data, focus on debt limit

Tue Jan 22, 2013 3:15pm EST

Related Topics

* Prices gain on weaker home data
    * Debt ceiling debate in focus, could add safety bid
    * Some T-bill rates fall on plan to extend debt ceiling

    By Karen Brettell
    NEW YORK, Jan 22(Reuters) - U.S. Treasuries prices rose on
Tuesday, erasing earlier losses, after weaker housing data
raised concerns about the strength of the economic recovery, and
as investors focused on negotiations in Washington over raising
the U.S. debt ceiling.
    The National Association of Realtors said on Tuesday that
U.S. existing home sales dropped 1.0 percent last month to a
seasonally adjusted annual rate of 4.94 million units, below the
median forecast of a 5.1 million-unit rate in a Reuters poll.
 
    That curbed earlier price losses suffered after U.S.
Republicans proposed a limited rise in the debt ceiling as
lawmakers wrangle over how to cut spending and reduce the U.S.
deficit.
    "There was a little bit of a selloff in the morning and then
there were a couple of pieces of data that come in relatively
weak, so Treasuries rallied back," said Boris Rjavinski, an
interest rate strategist at UBS in Stamford, Connecticut.
    Investors are more focused on economic data as they evaluate
whether the Federal Reserve will end its bond purchase program
this year, which most expect is dependent on a strong U.S.
recovery.
    The Fed is buying longer-dated debt every day this week as
part of its latest quantitative easing operation.
    At the same time the risk that lawmakers will not raise the
debt ceiling, which could cause the government to delay payments
on its debt, is expected to add a bid to longer-dated government
bonds over the coming months.
    Some concerns about the potential for a technical default in
February or March were eased after Republican leaders in the
House of Representatives said they aim to pass a measure on
Wednesday that would allow the government to borrow the money it
needs to pay its bills for nearly four months more, to May 19.
    However, other fiscal deadlines loom, including a March 1
launch of automatic spending cuts and a March 27 expiration of
funding for government agencies and programs. 
    "While the threat of an imminent default has been removed, a
repeat of the 2011 budget fight could prove destabilizing for
the economy and financial markets," said Millan Mulraine, senior
economist at TD Securities in New York.
    Yields on some Treasury bills that mature in February eased
on the news that the debt ceiling fight may be pushed back.
    Rates on six-month Treasuries bills that mature on February
14 fell to 3 basis points on Tuesday, down from
around 9 basis points a week ago.
    Treasuries bills are highly sensitive to the risk of being
repaid late. Money market funds can't accept defaulted
collateral to back loans in the repurchase agreement (repo)
market and they pulled back on lending against the debt in
mid-2011, when the ceiling was last an issue.
    Analysts expect that any fear over a potential default could
make financing near-term debt maturities in the market very
costly as lenders back away.
    "If there is an indication that people are getting spooked
again then repo will potentially spike. It's not happening yet,
but something to keep an eye on," said Rjavinski.
    Benchmark 10-year notes were last up 2/32 in
price to yield 1.84 percent, little changed from Friday.
Thirty-year bonds rose 5/32 in price to yield 3.02
percent, also little changed from Friday.
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