* Optimism tempered on avoiding U.S. fiscal crisis
* Greece, Catalonia support safe-haven bid for U.S. debt
* Fed set for six Treasuries buybacks this week
By Chris Reese
NEW YORK, Nov 26 U.S. Treasury prices rose on
Monday as fiscal challenges in the United States and political
uncertainty in Spain fed investors' appetite for safe-haven
The gains followed losses last week in thin holiday trading
after signs a deal might be reached to avert the U.S. "fiscal
cliff" of spending cuts and tax increases -- due to take effect
in early 2013 -- allowed the safety bid to dwindle.
However, by Monday the optimism on the fiscal cliff talks
was more tempered, although gains in Treasuries could be limited
by the conviction that if the fiscal cliff can be avoided, U.S.
economic growth will safely outpace that of the euro zone and
Japan in 2013.
"It appears that the bond market is not convinced that the
fiscal cliff is in the rearview mirror," said Kevin Giddis, head
of fixed income capital markets at Morgan Keegan in Memphis,
Treasuries began the day lower with some safe-haven buying
after separatists in Spain's Catalonia won a large majority in
regional elections. A deep recession and high unemployment have
fueled the separatist mood in Catalonia, which represents a
fifth of Spain's economy, piling political uncertainty on top of
Prime Minister Mariano Rajoy's economic problems.
Euro zone finance ministers and the International Monetary
Fund were also seeking to unfreeze the second bailout package
for Greece on Monday, but they must first agree on whether some
of the official loans to Athens might eventually be forgiven to
cut Greek debt.
Safe-haven buying occurred because the European Union "is
still sorting out Greece, and Catalonia takes steps towards
independence from Spain," said Tom di Galoma, managing director
at Navigate Advisors LLC in Stamford, Connecticut.
Benchmark 10-year Treasury notes traded 10/32
higher in price, with their yield dipping to 1.64 percent from
1.69 percent on Friday. Benchmark yields gained over 10 basis
points in trading last week, which was shortened by the
Thanksgiving Day holiday on Thursday.
"Today's Treasury market rebound is a breath-catching
exercise after four sessions where rates rebounded off of range
resistance," said William O'Donnell, head of U.S. Treasury
strategy at RBS Securities in Stamford, Connecticut.
"Indeed, I am reasonably confident that we'll test the 1.75
percent level in 10's in the coming days with a real risk that
we revisit range supports in 10's (at 1.85 percent) in the
coming few weeks," ODonnell said.
Bond prices rose on Monday even though the market faces $99
billion of supply this week. The U.S. Treasury Department will
sell $35 billion of two-year notes on Tuesday,
$35 billion of five-year notes on Wednesday and
$29 billion of seven-year notes on Thursday.
The Federal Reserve will be a large buyer of Treasuries this
week, with six purchases as part of its "Operation Twist"
stimulus program, under which it is selling shorter-dated U.S.
government debt and using the proceeds to buy longer-dated debt.
In the first of such purchases this week, the Fed on Monday
bought $1.855 billion of Treasuries maturing February 2036
through November 2042.
"The Federal Reserve has scheduled six purchases in
long-term Treasuries to take place over the next five days,"
said Jake Lowery, portfolio manager on the global rates team at
ING Investment Management in Atlanta, with $170 billion in
assets under management. "Those purchases, combined with demand
for bonds coming from political uncertainty in the U.S. and
Europe, are driving the rally."
Thirty-year Treasury bonds traded 21/32 higher
in price to yield 2.80 percent, down from 2.83 percent on