TREASURIES-Bonds stable after supply, budget talks in focus

Fri Feb 15, 2013 9:14am EST

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* Treasuries stable after absorbing $72 bln new supply
    * Budget talks expected to be focus, may send yields lower

    By Karen Brettell
    NEW YORK, Feb 15 (Reuters) - U.S. Treasuries were stable on
Friday with yields holding under key support levels at 10-month
highs after investors absorbed new supply this week, with talks
in Washington over the budget expected to dominate trading in
the coming weeks.
    Benchmark 10-year notes have tested support at yields of
around 2.03 percent to 2.06 percent over the past few days but
failed to break higher, which could have set the notes up for
further weakness.
    Treasuries may now get a bid in the coming weeks as
negotiations over automatic budget cuts, scheduled to come into
effect on March 1, come under increasing focus. The cuts, if
implemented, are expected to reduce economic growth, which could
send rates back lower.
    "The sequester is the big budget thing going forward," said
Alan De Rose, head trader of government trading and finance at
Oppenheimer & Co in New York.
    "I think the combination of the Fed buying and some of the
headwinds that are going to come from some level of budget cuts
is not going to let rates go up too much," he added.
    Ten-year Treasuries were last yielding 2
percent, at the high end of a recent trading range from around
1.90 percent to 2.03 to 2.04 percent.
    Some pressure on Treasuries yields is also likely to abate
after the Treasury this week completed its sale of $72 billion
in new three-year, 10-year and 30-year debt.
    Investors also were focused on a meeting in Moscow of
financial officials from the Group of 20 nations on Friday, that
 is set to be dominated by the debate over exchange rates.
.
    At issue is whether the loose monetary and fiscal policies
of the United States, Japan, Britain and the euro zone amount to
strategies of "competitive devaluation" or currency
manipulations intended to boost exports and growth.
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