By Ellen Freilich
NEW YORK Dec 17 U.S. Treasury prices fell on
Monday as U.S. politicians negotiated ways to avert tax hikes
and spending cuts that investors fear would hurt economic growth
Prices dipped to session lows when a White House official
said President Barack Obama and Republican House Speaker John
Boehner met at the White House on Monday to discuss the "fiscal
An aide to Boehner said the two met for 45 minutes, adding
that no details would be released about the private discussion.
"Treasuries started to slide as the headlines about the
Obama and Boehner meeting hit the tape," said Michael Cloherty,
head of U.S. interest rates strategy at RBC Capital Markets LLC.
Stocks climbed on that news to the detriment of safe-haven
U.S. debt, which draws buyers when the budget negotiations look
Over the weekend, Boehner proposed an increase in taxes
that, while still far short of what Obama is seeking,
represented the first real movement in "fiscal cliff"
negotiations ahead of a Dec. 31 deadline.
"With the weekend news about Boehner's concessions, and the
news today that Boehner and Obama are meeting about the fiscal
cliff, there is increased optimism about a deal," said Thomas
Simons, money market economist at Jefferies & Co. in New York.
Amid the hints of possible progress, U.S. 10-year Treasury
prices slipped 9/32, their yields rising 4 basis
points from late Friday to 1.74 percent.
William O'Donnell, head of U.S. Treasury strategy at RBS
Securities in Stamford, Connecticut, said 10-year Treasuries
were "nearing minor support" in the 1.75 percent yield area that
held in late October to early November.
"Investors should look for dips to buy Treasuries," he said.
"We expect a continued range trade as Washington sorts out
O'Donnell cited first support for 10-year notes at 1.75
percent and stronger support at 1.85 percent.
Meanwhile, traders positioned for a busy week of data
releases, Federal Reserve purchases, and Treasury auctions, the
latter starting with the Treasury's sale of two-year notes at 1
p.m. (1800 GMT).
Two-year Treasury sales have recently drawn strong
receptions and this week's sale is expected to fit that pattern.
Direct bidding has risen to 24 percent at the last four
actions, versus 9 percent in the four auctions prior to those,
said Ian Lyngen, senior government bond strategist at CRT
Capital Group in Stamford, Connecticut.
Simultaneously, the portion of the auction awarded to
investment funds has risen to 25 percent, or $8.8 billion, over
the last four auctions, versus 15 percent, or $5.3 billion at
the prior four sales, he said.
Buying by foreign accounts in two-year auctions has also
been noteworthy, taking 16 percent of the last four auctions, up
from 14 percent at the prior four, Lyngen said.
"Momentum has shifted bullishly in the front-end of the
curve ... favoring lower yields," he said. "We see initial
resistance at the 23-basis-point low-yield mark," he said,
citing the gap between 25 bps to 25.4 bps as support.
Two-year Treasury notes were near flat on the day, yielding
a quarter of a percentage point.
After its sale of two-year debt on Monday, the U.S. Treasury
will sell five- and seven-year notes on Tuesday and Wednesday,
Japanese election results were also said to weigh slightly
on U.S. debt. A landslide victory for Shinzo Abe raised the
prospect of more aggressive monetary stimulus from the Bank of
Japan, which weighed on low-risk government bonds, including
Treasuries and German Bunds.
Treasuries prices were unmoved by a negative December
reading on the Empire State Manufacturing Report, which measures
factory activity in the New York region. Decision Economics
economist Pierre Ellis said the report reflected "stagnation, or
creeping decline as against the hint of improvement that was