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TREASURIES-Bonds well-bid, fiscal cliff worries under spotlight
November 8, 2012 / 2:55 AM / 5 years ago

TREASURIES-Bonds well-bid, fiscal cliff worries under spotlight

3 Min Read

TOKYO, Nov 8 (Reuters) - U.S. Treasuries were firm in Asia on Thursday as President Barack Obama's re-election reinforced expectations that monetary policy would stay loose, while stocks eased on worries about a fast-approaching fiscal cliff that could force Washington into spending cuts and tax hikes.

* The yield on the newly auctioned 10-year notes stood at 1.68 percent. The 10-year notes futures price was little changed at 133-16/32 versus Wednesday's close of 133-18.5/32, staying above its 100-day moving average at 133-14/32.

* Both the Dow Jones index and S&P 500 fell to three-month low, with the Dow posting its biggest fall in about a year, hit by worries about the looming fiscal cliff -- of $600 billion spending cuts and higher tax rates due to set in from next year.

* As the U.S. Congress remained divided after the election, with the Democrats at the helm of the Senate while the Republicans keep control of the House of the Representatives, investors are worried if lawmakers can make a deal to reduce fiscal tightening.

* "Although we expect a compromise to be reached in the end, negotiation will likely be very difficult and drag on until the end of year. Uncertainty over the fiscal cliff is likely to support bonds," said Shinichiro Kadota, non-yen fixed income analyst at Barclays in Tokyo.

* Kadota added that he expects the 10-year yield to fall to around 1.50 percent towards the end of December.

* In a sign of trouble ahead in resolving the "fiscal cliff", Democratic and Republican leaders on Wednesday claimed new but conflicting election "mandates" on how and when to deal with the fiscal cliff, which threatens to push the United States into recession.

* Bonds were supported also because Obama's re-election meant the Federal Reserve will have presidential backing for its loose monetary policy, whereas defeated Republican candidate Mitt Romney and many in his party were opposed to quantitative easing.

* Concerns about the European debt crisis, while put on back burner now, still helped to underpin Treasuries. The market showed muted response after Greek lawmakers approved an austerity package needed to unlock international aid by a razor thin margin.

* While the vote is one step forward for Greece to secure aid needed to avert bankruptcy, the coalition government also needs to pass the 2013 budget in a vote expected on Sunday.

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