November 28, 2012 / 2:56 PM / 5 years ago

TREASURIES-Bond prices rise on standoff in U.S. budget talks

4 Min Read

* Lack of progress on U.S. budget talks lifts bonds
    * U.S. to sell $35 billion new 5-year notes
    * Fed to buy up to $7.50 bln in bonds in two operations
    * U.S. new home sales data, Fed's Beige Book on tap

    By Richard Leong
    NEW YORK, Nov 28 (Reuters) - The absence of progress in
Washington in talks to avert a fiscal crisis lifted U.S.
government bond prices for a third straight day on Wednesday in
advance of a $35 billon auction of five-year federal debt.
    Worries abound that gridlock between the White House and
Congress over the series of automatic tax increases and spending
cuts worth $600 billion, that could phase in next year, could
well push the U.S. over what has been dubbed the "fiscal cliff."
     This outcome could send the economy into a recession and
have underpinned safe-haven support for the bond market since
the U.S. presidential election three weeks ago.
    Investor dialed back hopes for a timely budget deal after
Senate Majority Leader Harry Reid, a Democrat from Nevada said
on Tuesday he was disappointed that there has been "little
progress" in the negotiations. 
    "Since his (Reid's) comments, the stock market has gone down
and bonds have been popping up," said Thomas Roth, executive
director in U.S. government bond trading at Mitsubishi UFJ
Securities USA in New York.
    U.S. President Barack Obama will meet will business
executives from larger companies later Wednesday in a public
push for his tax plan, while leading Republican lawmakers seem
pat on their stand to extend tax cuts for all Americans
including the top earners. 
    Concerns over the possibility of the "fiscal cliff" kept
longer-dated Treasury yields below their 100-day moving
    Benchmark 10-year Treasury notes last traded
8/32 higher in price with a yield of 1.610 percent, down 3 basis
points from late on Tuesday and under its 100-day moving average
of 1.6495 percent, according to Reuters data.
    The 30-year bond was 22/32 higher in price,
yielding 2.753 percent, down 3 basis points from Tuesday's close
and below its 100-day moving average of 2.7875 percent.
    U.S. stocks opened lower on Wednesday putting the S&P 500 on
track for a third consecutive decline, as investors remained on
edge given the lack of details on U.S. budget talks. 
    In the futures and options market, traders were selling
volatility on the view that interest rates and bond yields will
hold in tight range until a budget compromise is reached.  
    Given the market's preoccupation with the U.S. budget talks,
economic data have taken a backseat as a factor on its
perception about interest rates and Federal Reserve policies.
    The government will release data on new home sales in
October at 10 a.m. (1500 GMT), followed by the Fed's Beige Book
at 2 p.m. (1900 GMT), an anecdotal view from the Federal Reserve
Districts on U.S. economic conditions.
    Between the two reports, the Treasury Department will
continue its month-end sales of new short-to-medium debt,
totaling $99 billion.
    It will auction $35 billion in five-year notes at 1 p.m.
(1800 GMT), following record demand for $35 billion of two-year
notes on Tuesday. It will sell $29 billion of seven-year debt on
    In the "when-issued" sector, traders anticipated the
upcoming five-year supply to sell at a yield of 0.648 percent
, which was lower than the yield of 0.774 percent
on the five-year notes sold in October.
    Meanwhile, the Fed will conduct two separate purchases of
Treasuries as a part of its "Operation Twist," a program aimed
to lower long-term interest rates to help the economy.
    The first operation at 11 a.m. (1600 GMT) involved
Treasuries that mature in Feb 2036 to Nov 2042, while the second
at 2 p.m. (1900 GMT) involves government bonds that mature in
Nov 2018 to Nov 2020.

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