December 10, 2012 / 3:00 PM / 5 years ago

TREASURIES-Prices gain in worries over US fiscal crisis, Italy

* No visible signs of progress in resolving "fiscal cliff"
    * Doubts arise over whether Italy will continue economic
    * Treasury to sell $66 bln of debt this week

    By Chris Reese
    NEW YORK, Dec 10 (Reuters) - U.S. Treasury debt prices rose
on Monday on concerns over protracted budget negotiations in
Washington, political rumblings in Italy and expectations for
further monetary policy easing by the Federal Reserve.
    President Barack Obama and Republican Speaker of the House
of Representatives John Boehner failed to reach an agreement on
Sunday on ways to stop large-scale, automatic fiscal tightening
from kicking in next year. 
    Economists fear the "fiscal cliff" of $600 billion worth of
tax increases and spending cuts could send the U.S. economy back
into recession, dragging the rest of the world with it.
     Lawmakers only have a few weeks left to try to avert it.
    In Italy, Prime Minister Mario Monti on Saturday said he
would resign once the budget for 2013 was approved. Monti was
trusted by investors to bring down Italy's huge debt and is
credited for stabilizing the country's bond markets.
    The announcement came after former Prime Minister Silvio
Berlusconi's party withdrew support for Monti last week and he
said he could run to become a premier for a fifth time.
    This raised fears Monti's successor may not continue his
economic reforms and Italy may come to the forefront of the euro
zone debt crisis again.
    Italy's borrowing costs rose and U.S. government debt yields
dipped in safe-haven demand for the lower-risk assets.
    Benchmark 10-year Treasury notes were trading
5/32 higher in price to yield 1.61 percent, down from 1.62
percent late Friday, while 30-year bonds were 10/32
higher to yield 2.79 percent from 2.81 percent.
    Price gains were limited however, with some investors
reluctant to aggressively push yields lower ahead of the sale of
$32 billion of three-year notes on Tuesday, $21 billion of
10-year notes on Wednesday and $13 billion of 30-year bonds on
    "With the lack of data today, the market will focus the
equity market direction, news of the fiscal cliff, and the
set-up for this week's supply of 3-year, 10-year, and 30-year
paper," said Tom di Galoma, managing director at Navigate
Advisors LLC in Stamford, Connecticut.
    A better-than-expected November jobs report on Friday
 did little to alter expectations that the U.S.
Federal Reserve is likely to muster some additional bond buying
plans at its two-day meeting which will end on Wednesday.
    Many investors expect the Fed to announce it will buy $45
billion per month of longer-dated Treasuries beginning in
January to replace the current "Operation Twist" stimulus
program which expires at the end of December.
    Under Operation Twist, the central bank is selling
shorter-dated U.S. government debt and buying longer-dated
Treasuries to extend the duration of its balance sheet.
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