LONDON Dec 18 U.S. Treasury yields steadied
near their highest levels since October on Tuesday as U.S.
lawmakers edged closer to a deal to avert a fiscal crisis in
* U.S. borrowing costs over ten years were flat
at 1.78 percent after rising to 1.796 percent in Asian trading -
its highest since Oct. 26.
* Thirty-year yields were little changed at 2.95
percent, a whisker away from levels hit overnight at 2.97
percent - also its highest since Oct. 26.
* The sell-off was led by signs of progress in U.S. debt
negotiations as, according to a source familiar with the talks,
President Barack Obama made a counter-offer to Republicans that
included a major change in position on tax hikes for the wealthy
and helped narrow the differences between the two sides.
* Bond markets have been sensitive to the U.S. budget talks,
with economists worried that a failure to reach a deal to avert
a bout of tax hikes and spending cuts that will be triggered
early next year would tip the world's largest economy back into
* "We haven't got a budget deal in place, but at least there
are signs of movement between the Democrats and the Republicans,
and the market is ever hopeful that an agreement will be
achieved before the end of the year," said Nick Stamenkovic,
bond strategist, at RIA Capital Markets in Edinburgh.
* "With ten year yields now at 2-month highs, investors seem
to be taking a pause for breath, awaiting any further news on
the fiscal front," he added.
* Traders said any sell-off related to U.S. fiscal talks
could be limited by investors' general appetite for safe-haven
Treasuries as the year draws to an end. Those opposing forces
should see 10-year yields trade in the low 1.60 percent area at
the end of 2012, one trader said.
* "If there is a compromise, and there is a deal, the market
is going to take that as positive, there will be weakness in
fixed income," the trader said. But he added: "I still think the
market is going to want to be long Treasuries into the end of
* The Treasury market also faces a bout of supply this week.
After lukewarm demand at a two-year bond sale on Monday, the
government sells another $35 billion in five-year notes on
Tuesday, $29 billion in seven-year notes on Wednesday and $14
billion in five-year Treasury Inflation-Protected Securities
(TIPS) on Thursday.
(Reporting by Ana Nicolaci da Costa and Alistair Smout/Chris
Pizzey, London MPG Desk, +44 (0)207 542-4441)