TREASURIES-Prices edge up as U.S. debt ceiling extended

Wed Jan 23, 2013 3:04pm EST

Related Topics

* Prices rise after debt ceiling extended
    * Fears of potential debt default priced out of market
    * Global growth concerns add bid for Treasuries

    By Karen Brettell
    NEW YORK, Jan 23(Reuters) - U.S. Treasuries prices edged up
on Wednesday after a vote by the House of Representatives to
extend the borrowing authority under the federal debt limit to
May, and as some investors worried that growth is likely to
remain tepid.
    The Republican debt ceiling plan will allow the government
to keep borrowing money through mid-May, putting it on a fast
track to enactment after the top Senate Democrat joined the
White House in endorsing it. 
    Market concern about the failure to raise the debt ceiling
had been ebbing in the past week as Republicans appeared more
reluctant to use the measure as a tactic to win cuts in
government spending.
    "I think that was widely anticipated, there was certainly
sentiment over the last couple of weeks that things were going
to move in that direction," said Greg Faranello, a Treasuries
trader at Societe Generale in New York.
    Some fears over a potential debt default were last week
being priced into Treasuries bills due in late February and in
March, when the Treasury had warned it would run out of measures
to avoid hitting the debt ceiling.
    Those bills have now largely erased their earlier yield
increases.
    "The biggest issue was political dysfunction. When you push
it back by three months not only does it take care of the
immediate problem, it also sends a signal that the next time
this becomes an issue they will probably do it again," said
Amrut Nashikkar, an analyst at Barclays in New York.
    "Unless things get much worse in terms of the dialogue that
is coming out of DC, the debt ceiling itself is unlikely to be
an issue," he said.
    Benchmark 10-year notes were last up 5/32 in
price to yield 1.83 percent, down from 1.84 percent late on
Tuesday.
    Thirty-year bonds rose 4/32 in price to yield
3.02 percent, little changed from Tuesday. The bonds earlier
tested the key 3 percent level, where the debt has technical
resistance.
    Some concerns that global growth will stay sluggish also
added a bid to Treasuries on Wednesday.
    The International Monetary Fund on Wednesday said that
unexpectedly stubborn euro zone recession and weakness in Japan
will weigh on global economic growth this year before a rebound
in 2014 that should deliver the fastest expansion since 2010.
 
    "Japan, Europe and the U.S. are struggling to find something
more than 'surface growth,' and that is leading investors to
hedge their hopes by taking some risk off the table in the form
of U.S. Treasuries," said Kevin Giddis, managing director of
fixed income at Morgan Keegan in Memphis, Tennessee.
    Disagreement among voting members of the Federal Reserve
over when to end its latest quantitative easing effort has led
to speculation that the central bank may end the program before
year end.
    Fed Chairman Ben Bernanke, however, has said he wants the
U.S. economy to be on a surer footing before ending purchases.
    Minutes from the Fed's January meeting will be released next
Wednesday. Other closely watched events will include jobless
claims due on Thursday, and next Friday's payrolls employment
report for January.
    Any surprise from these events may move Treasuries out of
their current range. Ten-year notes yields have traded between
1.80 percent and 1.91 percent this month.
    "I think the market is looking for a new catalyst to break
either way. There are some events that could potentially shake
us one way or another but right now when you look at the Fed,
it's still buying on a day to day basis," said Faranello.
    The Fed on Wednesday bought $1.474 billion of U.S.
government debt maturing February 2036 through May 2042, out of
$5.72 billion submitted for purchase.
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