January 2, 2013 / 2:10 PM / 5 years ago

TREASURIES-Benchmark yields climb to 3-month highs on fiscal deal

* Deal to avert "fiscal cliff" spurs risk-on trade
    * Benchmark yields climb to highest since mid-Sept
    * Worries over debt ceiling seen containing selloff

    By Chris Reese
    NEW YORK, Jan 2 (Reuters) - U.S. benchmark 10-year Treasury
yields rose to the highest in over three months on Wednesday
after lawmakers approved a deal preventing a round of automatic
fiscal tightening that could have pushed the world's largest
economy into recession.
    The Republican-controlled House of Representatives approved
a bill that will raise taxes on top earners, avoiding a "fiscal
cliff" of $600 billion in tax hikes and spending cuts.
    This prompted investors to move money out of safe-haven
assets such as U.S. government debt and into higher-yielding,
riskier assets, such as equities.
    "The House passed the Senate's last minute deal overnight
... sparking a substantial risk-on move that has Treasuries on
the back foot," said John Briggs, Treasury strategist at RBS
Securities in Stamford, Connecticut.
    Benchmark 10-year Treasuries were trading 29/32
higher in price to yield 1.86 percent, marking the highest yield
since mid-September and up from 1.76 percent late Monday.
    Thirty-year Treasury bonds were trading 1-30/32
lower in price to yield 3.05 percent, up from 2.95 percent late
Monday and also the highest since mid-September.
    Yields may rise further if data, including the Institute for
Supply Management factory activity survey for December later on
Wednesday or the nonfarm payrolls report on Friday, show the
U.S. economy improving.
    However, analysts said a massive selloff in U.S. debt was
unlikely. In addition to further fiscal tightening, lawmakers
must still agree in the next few weeks on raising the
government's borrowing limit.
    "Higher tax rates will bring slower growth going forward and
(investors) view the recent selloff as a decent opportunity to
add duration," said Tom di Galoma, managing director at Navigate
Advisors LLC in Stamford, Connecticut.  
    The Federal Reserve's loose monetary policy is also expected
to keep yields relatively subdued for a long period, especially
on short-dated paper.
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