LONDON, March 4 U.S. bond prices inched up in
Europe on Monday as automatic spending cuts took effect after
lawmakers failed to reach a deal to avert them, raising concern
the fiscal drag could hit growth.
Political instability in Italy as it struggled to form a
government after inconclusive elections last week also supported
demand for low-risk debt.
President Barack Obama and congressional Republican leaders
last week failed to find an alternative budget plan to avert the
$85 billion across-the-board cuts from kicking in on Friday.
They could still halt the cuts in the weeks to come, but
neither side has expressed confidence it will be able to do so.
The 10-year T-note was last up 2/32 in price to yield 1.839
percent, one basis point less than in late U.S. trade on Friday
and not far from a one-month low of 1.836 percent set last week.
The T-note future was 3/32 up at 131-28/32.
"We had the sequester cuts triggered on Friday and things
are starting to heat up again in Europe... The political
situation in Italy continues to be unstable and we had the
anti-austerity marches in Portugal at the weekend. This is
helping the bid here," a trader said.
"We don't have any auctions this week and we have buybacks
so the market will probably do OK," he added.
Treasuries were unfazed by data from the Institute for
Supply Management on Friday showing production at U.S. factories
grew last month at its fastest pace since June 2011, as traders
focused on the spending cuts and events in Italy.
The 30-year T-bond was last 3/32 higher in price
to yield 3.05 percent, one basis points less than in late New
York trade on Friday.
Some strategists see negotiations on the budget cuts
dictating market direction in coming weeks.
"Even in scenarios where these cuts are implemented in a
targeted manner, the resulting fiscal tightening would be more
than is priced in by the Treasury market," Barclays strategists
say in a note.
"Therefore, we maintain that the Treasury yields still have
room to decline, led by the long end. The latter is
because the rally so far has been led by the shorter end of the