December 20, 2012 / 2:55 PM / 5 years ago

TREASURIES-U.S. Treasuries gain as fiscal talks stall

NEW YORK, Dec 20 (Reuters) - U.S. Treasuries prices rose on Thursday as investors stuck to safe-haven government bonds on the view fiscal talks in the United States seem to be losing momentum.

Benchmark 10-year Treasury notes rose 4/32, their yields easing to 1.79 percent from 1.80 percent late on Wednesday.

In contrast, stocks opened flat on Wall Street.

The 10-year Treasury yield rose to 1.847 percent on Tuesday, its highest in about two months, on rising expectations the White House and Congress were moving closer to reaching a deal on the budget.

But on Wednesday President Barack Obama said he would veto the Republicans' proposal to avoid some of tax hikes and spending cuts due early next year.

"The fiscal cliff news didn't sound particularly constructive. Things deteriorated so that's obviously given Treasuries a bid," a trader said.

Economic data released early on Thursday were mixed for bonds. The final revision to third-quarter gross domestic product (GDP) reflected better consumption, a negative for safe-haven bonds; but investment in equipment and software was revised lower, favoring bonds.

News from the Labor Department that new jobless claims rose in the latest week was slightly supportive for bonds.

The labor market story, a tale of whether the glass is half empty or half full, is not strong enough to push bond prices down and yields higher and assures a continuation of the Federal Reserve's accommodative - and bond-bullish - monetary policy.

"Our view is that the unemployment rate will remain well above 7 percent through the coming year and well above the Fed's numerical target of 6.5 percent," said Tanweer Akram, senior economist, global rates, fixed income at ING Investment Management in Atlanta, Georgia.

Such forecasts are another reason many investment managers and trading strategists say the current 10-year yield - at 1.80 percent - is at the upper end of its trading range and could move lower, especially if the austerity package of tax hikes and spending cuts goes into effect next year with no amelioration.

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