* U.S. Speaker's own party kills bill as fiscal cliff nears
* Ten-year yields ease further off eight-week highs
By Ellen Freilich
NEW YORK, Dec 21 U.S. Treasuries rallied on
Friday as investors bought safe-haven U.S. debt after a split in
the Republican party reduced the chances of Washington averting
before year-end a $600 billion fiscal crunch in 2013.
Yields on 10-year Treasuries extended Thursday's falls after
House of Representatives Speaker John Boehner acknowledged his
bill lacked the votes to pass.
"It's all about the 'Plan B' failure last night. That
triggered a huge selloff in equities so Treasuries are
rallying," said Thomas Simons, money market economist at
Jefferies & Co. in New York.
The development sent the benchmark 10-year Treasury note
up 14/32 in price; its yield eased to 1.75 percent
from 1.80 percent on Wednesday.
The 30-year Treasury bond rose more than a point
in price; its yield eased to 2.93 percent from 2.98 percent late
"Why are Treasuries higher? In a word: Boehner," said John
Canavan, fixed income analyst at Stone & McCarthy Research
Associates in Princeton, New Jersey. "His 'Plan B' idea to make
an end run around negotiations with President Obama and just
pass a Republican plan to avoid the fiscal cliff failed last
night when the Speaker couldn't even round up enough of his own
members to vote for it.
"Republicans packed up after the failure and said there
would be no votes until after Christmas. Our toes are hanging
over the fiscal cliff at this point," Canavan said.
"With no agreement currently in sight, and time needed to
write and pass the bills even after an agreement is reached,
there appears to be no chance we won't go fully over that cliff
at least temporarily," Canavan added.
Earlier this week, the U.S. benchmark 10-year yield rose to
an eight-week high of 1.847 percent on rising optimism that a
budget deal was close.
Ten-year yields could pull further away from those highs,
traders and strategists said. If a compromise were reached
before year end, that could curb the rally in safe-haven debt,
The lack of progress in the fiscal talks boosted demand at
Thursday's $14 billion auction of five-year Treasury inflation
protected securities (TIPS), which sold at a record
negative yield of 1.496 percent.
The Federal Reserve cancelled the sale of shorter-dated
Treasury debt that was tentatively scheduled for Dec. 27 as part
of the central bank's "Operation Twist" stimulus program, the
New York Fed said on its website on Thursday, as the sale was
"no longer necessary."
On Thursday, the Fed bought $1.73 billion of Treasuries
maturing February 2023 through February 2031, followed by a
$7.42 billion sale of its short-dated debt holdings, as part of
The struggle over the fiscal cliff made economic data
releases a bit of a subplot for the market.
News that U.S. consumer spending rose in November by the
most in three years and that a measure of planned business
spending jumped had little impact on asset prices which are
looking ahead to the potential economic impact of tax hikes and
spending cuts that will go into effect next year if negotiators
in Washington D.C. cannot pull back from the so-called cliff.
For now, however, "The economy is holding in here at the end
of the year despite the concerns about the fiscal cliff," said
Gary Thayer, an economic strategist at Wells Fargo Advisors in
One report - the Thomson Reuters/University of Michigan's
consumer sentiment index -- showed that U.S. consumer sentiment
slumped in December, suggesting Americans were concerned about
the tax hikes and spending cuts that could go into effect in the
new year if a fiscal cliff agreement is not reached.