LONDON Jan 23 U.S. debt prices held firm on
Wednesday on expectations a proposed debt-limit extension will
be approved, with the prospect of nearly four more months of
uncertainty balancing out short-term relief at the measure.
Treasury futures were steady at 132-8/32, with
10-year benchmark yields at 1.83 percent --
comfortably within their recent 1.8 to 1.9 range.
Market participants said current Treasury prices were
anticipating that a proposal to extend the U.S. debt limit until
May would be passed, based on signals from Republican leaders on
"The debt ceiling being extended should be in the price
here... to some extent we're at the mercy of stocks and they may
prove a near-term negative for bonds after the bill gets passed
but overall I'd say we're well priced," a trader said.
Longer-term, the extension of the debt limit, which would
prevent the United States defaulting on its debts over the
coming months, was seen as prolonging the sense of uncertainty
in markets and a risk to U.S. economic growth.
"Although the immediate threat of a default has gone, at the
same time the deadline has moved up to May and we're going to be
stuck with fiscal uncertainty for longer," said Philip Marey,
strategist at Rabobank in Utrecht.
That uncertainty would filter through into economic data
over the coming months, supporting U.S. debt around current
levels, as businesses put off investment decisions and consumers
feel the hangover from the expiry of tax breaks.
"If businesses and consumer spending are being held back for
various reasons then I don't think the U.S. economy will grow
very rapidly in the beginning of the year... all that will keep
markets from getting too exuberant," Marey said.