LONDON Nov 28 U.S. Treasury debt prices pushed
higher on Wednesday, supported by concern over a lack of
progress in talks to avert a massive fiscal tightening that
could damage the fragile economic recovery.
* Treasuries extended the previous day's late rally
triggered by Senate Majority Leader Harry Reid, who said he was
disappointed there had been "little progress" among Democratic
and Republican lawmakers as they try to reach a deal to avoid
the year-end "fiscal cliff".
* The fiscal cliff is a series of automatic tax hikes and
spending cuts that will begin in early 2013 unless Congress and
the White House agree on measures to avoid them.
* "Reid implied that progress was not forthcoming at the
moment so ... the market squeeezed higher and we also had a good
two-year (bond) auction on worries about the fiscal cliff. We've
kept the bid going," a trader said.
* The 10-year T-note price rose 4/32 to yield 1.62 percent
, down 2 basis points from late U.S. trade on Tuesday
while the T-note future was last up 7/32 at 133-30/32.
* While bond yields are likely to climb if a deal is reached
to avoid the fiscal cliff, the potential a sustained rise will
hinge on the contents of the deal, a portfolio manager for a
major Japanese bank in Tokyo said.
* If there is only an agreement to buy time, putting off the
fiscal cliff for three to six months or a year, concerns over
political deadlock are likely to persist, he said. In that case,
a rise in the 10-year yield may prove short-lived, with buyers
likely to step in at levels near 1.9 percent.
* Treasury yields, however, could see a more enduring rise
if a "grand bargain" is struck over long-term deficit
reductions, the portfolio manager said.
* "That would dispel worries about politics and Congress,
and could make it easier for risky assets to head higher over
the medium to longer term. Bonds are likely to be sold initially
and bond yields might keep heading higher from there," he said.
* Traders' attention on Wednesday will also be on a $35
billion sale of five-year notes later in the day, which most
expected to meet strong demand following solid bidding at a
two-year note auction on Tuesday.
* The five-year T-note yield was quoted at 0.65
percent in the when-issued market, compared with 0.64 percent
yielded in the secondary market by the current five-year note.
* "We may cheapen up going into the auction but you're going
to see reasonable demand," another trader said.