By Ellen Freilich
NEW YORK Dec 20 U.S. Treasuries prices rose
slightly on Thursday, despite stronger than expected economic
data, as investors stuck to safe-haven government bonds in case
tax increases and spending cuts take effect next year and curb
As a year-end deadline looms, Republicans in the U.S House
of Representatives pushed ahead with their own "fiscal cliff"
plan to avoid steep tax hikes and spending cuts. But President
Barack Obama has vowed to veto the plan, which only raises taxes
on people making more than $1 million a year.
Benchmark 10-year Treasury notes rose 3/32,
their yields easing to 1.79 percent from 1.80 percent late on
"It's all about the fiscal cliff resolution and it doesn't
look like we are getting one, so a safe-haven bid is resulting
going into year end," said Tom DiGaloma, managing director at
Navigate Advisors LLC in Stamford, Connecticut.
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 as that goal has looked more elusive,
investors have bought Treasuries.
Economic reports showed that jobless claims fell, sales of
existing homes jumped, and manufacturing in the mid-Atlantic
region improved notably. All of that should have been bearish
But that news was overshadowed by the prospect of tax
increases and spending cuts in the coming year that would
depress economic growth.
"It's not about the economic data at this point," said Ian
Lyngen, senior government bond strategist at CRT Capital LLC in
Stamford, Connecticut. "The market is all about the fiscal cliff
and there is no progress on that front."
Yields near their highest levels in almost two months also
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.
"This market is going through a tug of war," said Robert
Tipp, chief investment strategist with Prudential Income in
Newark, New Jersey. "We're seeing better underlying data in the
U.S. and yet the market is holding narrow gains on the day."
Tipp said the better data and previous optimism that the
United States would not go over the fiscal cliff let investors
experiment with how high Treasury yields would go in a global
economic environment that looks better than investors' worst
"But after a move to 1.80 percent (on the 10-year Treasury
yield), it looks like the selloff is running out of stream," he
said. "The overwhelming amount of demand relative to supply
continues to keep yields at really modest levels."
Some of that demand is from the Federal Reserve as the
central bank tries to stimulate economic activity through
accommodative monetary policy.
As part of that effort, the Fed on Thursday bought $1.729
billion of Treasuries maturing February 2023 through February
The final Treasury auction of the year is set for this
afternoon: a $14 billion re-opening of five-year Treasury
Inflation-Protected Securities (TIPS).