TREASURIES-U.S. bonds steady as Bernanke, spending cuts loom

LONDON Mon Feb 25, 2013 6:40am EST

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LONDON Feb 25 (Reuters) - U.S. Treasuries held steady in Europe on Monday as concerns over potentially growth-crimping spending cuts supported demand for low risk debt, while the prospect of $99 billion in debt supply this week curbed gains.

About $85 billion in spending cuts will begin on March 1 unless U.S. politicians agree on how to avert the so-called "sequester" cuts.

Economists say these cuts would hurt the U.S. economy. Ahead of the deadline, the White House issued more dire warnings about the harm they would do to Americans, giving a breakdown of the loss of jobs and services in each state.

U.S. T-note yields were last at 1.965 percent, the same as in late U.S. trade on Friday, well within the 1.76-2.06 range that has prevailed for much of this year.

The benchmark yield could test the low end of that band if Democrats and Republicans fail to reach a deal before Friday, some traders said.

"If it (the sequester) does happen you are going to get a rally here in the market. There are some guys who are expecting the yield to go down to 1.75 (percent) but I think that could be challenging," a trader said.

The market will also be looking for reassurance in Federal Reserve Chairman Ben Bernanke's bi-annual testimony this week that the central bank will continue buying assets to support the economy and is not leaning towards curbing its easing programme later this year.

Bernanke will testify before the Senate Banking Committee on Tuesday and the Housing Financial Services Committee on Wednesday.

In supply this week, the Treasury Department will kick off with a $35 billion sale of two-year notes on Monday. It will be followed by a $35 billion auction of five-year debt on Tuesday and a $29 billion sale of seven-year notes on Wednesday.

"While Fed Chairman Bernanke's semi-annual testimony on Capitol Hill is likely to reiterate the prevailing accommodative policy stance, we would use any supply-related back up in yields within the current range to adopt a bullish stance from a tactical perspective," Lloyds strategists said in a note.

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