LONDON Nov 29 U.S. Treasuries fell on Thursday as demand for low-risk assets dipped after positive signs that lawmakers would reach a deal to avoid a fiscal cliff of tax hikes and spending cuts early next year.
* Treasury futures retreated from recent highs to stand 4/32 lower at 133-55/64, as selling continued into the European session after comments on Wednesday from U.S. President Barack Obama and House of Representatives Speaker John Boehner.
* Both signalled optimism that politicians will find a way to avert $600 billion of tax increases and spending cuts scheduled to take effect automatically next year and that could drag the U.S. economy back into a recession.
* "(These comments) have reignited hopes that a fiscal deal will be agreed by the end of the year. Consequently risk markets have benefited from that and we've seen an unwind of the flight to quality we had yesterday in core government bonds," said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh.
* Traders also attributed the dip to developments in the euro zone where diminishing worries about Greece's immediate debt problems spurred greater risk-taking, dampening the appeal of high quality, low-yielding government bonds.
* "There's been buying in the euro zone peripherals so I think we're seeing some selling versus Treasuries and German Bunds as well ... that's driving an unwind in core government bonds," a trader said.
* Supply of seven-year bonds later in the day was expected to require only a minimal concession, following the trend set by solid sales of two- and five-year bonds earlier this week.