* Improvement expected in Reuters/U Michigan sentiment index
* Position-squaring could emerge before three-day weekend
By Ellen Freilich
NEW YORK, Jan 18 U.S. government debt prices
rose on Friday as debate about raising the nation's debt ceiling
prompting investors to buy securities cheapened by this week's
stronger-than-forecast economic data.
A strong report on the housing sector and a drop in new
claims for unemployment insurance cut Treasuries prices on
Thursday and overnight, slightly better-than-expected data on
China's growth lifted 10-year yields nearly to 1.90 percent,
making them more appealing to buyers.
The risk, however slim, that the United States might default
if it does not raise its borrowing limit in the next few weeks
is likely to keep buyers ready to respond to any price cuts,
That's because investors really see the U.S. debt ceiling
tussle as a temporary problem and regard the U.S. debt market as
one of the safest places for investors to park cash.
Republicans in the U.S. House of Representatives have
signaled they might support a short-term extension of U.S.
borrowing authority next month so they can move on to other
"Treasuries are reversing a portion of yesterday's pullback
ahead of a generally quiet calendar and a three-day weekend,"
said John Canavan, market analyst at Stone & McCarthy Research
Associates in Princeton, New Jersey.
Benchmark 10-year Treasury notes were up 8/32 to
97-31/32 on Friday, their yields easing to 1.85 percent from
1.88 percent late on Thursday.
"The underlying story is that the U.S. is recovering and the
recovery is gaining in strength ... but the fiscal policy
uncertainty is holding it back at the moment," Rabobank
strategist Philip Marey said.
The Reuters/University of Michigan consumer sentiment index
due at 9:55 a.m. EST (1455 GMT) is expected to fit the recent
trend of stronger data.
High Frequency Economics economists said the fiscal cliff
deal likely prompted "at least a modest bounce" in the sentiment
index. A Reuters poll predicted the preliminary January index
would read 75.0, up from 72.9 in December.
The cost to insure U.S. Treasuries against default was
holding at its level since August 2011 early Friday, prompted by
worries that Congress would not raise the debt ceiling in time
to repay debt that matures as early as late February.
The price on the five-year credit default swap on U.S.
government debt was last quoted at 44 basis points, compared
with 43 basis points late on Thursday, according to data firm
During a debt ceiling standoff in the summer of 2011, the
five-year USA CDS price rose as high as 63 basis points. The
five-year CDS price on U.S. government debt is higher now than
that on German Bunds, which was last seen a month ago.