January 22, 2013 / 5:51 PM / in 5 years

TREASURIES-Prices steady as investors mull US debt ceiling proposal

* Republicans propose short-term raise of the debt ceiling
    * U.S. existing homes sales fall unexpectedly in December
    * German investor sentiment rises sharply in January

    By Chris Reese
    NEW YORK, Jan 22 (Reuters) - U.S. Treasury debt prices were
trading little changed on Tuesday as a U.S. Republican proposal
for a limited rise in the debt ceiling curbed demand for
safe-haven assets.
    While the proposal to lift the debt ceiling alleviated fears
of a U.S. debt default in the next couple of months, investors
still expect government wrangling over the budget deficit to
hobble consumer confidence and economic growth.
    Early price losses were pared after data showing an
unexpected fall in existing home sales in December sparked some
worries over the pace of recovery in the housing market. 
    In Washington, Republican leaders in the House of
Representatives said they aim to pass a measure on Wednesday
that would allow the government to borrow the money it needs to
pay its bills for nearly four months more, to May 19.
    Investors had worried that fighting over the debt ceiling
could force the United States to delay payments on its debt.
    However, other fiscal deadlines loom, including a March 1
launch of automatic spending cuts and a March 27 expiration of
funding for government agencies and programs. 
    "While the threat of an imminent default has been removed, a
repeat of the 2011 budget fight could prove destabilizing for
the economy and financial markets," said Millan Mulraine, senior
economist at TD Securities in New York.
    "Ultimately, we expect a deal to be reached, but given that
both sides continue to dig their heels in, the negotiations are
likely to be unnecessarily protracted and unpleasant," Mulraine
    In the meantime, benchmark 10-year Treasury notes
 on Tuesday were trading 1/32 higher in price with
their yield little changed from late Friday at 1.84 percent. The
U.S. Treasury market was closed on Monday in observance of
Martin Luther King Jr. Day.
    Treasuries began the day trading lower in price after
Germany's ZEW analyst and investor sentiment survey beat
expectations in January with a sharp rise for the second month
in a row. It was a sign the euro zone crisis is no longer
hitting Europe's largest economy as hard as in late 2012.
    Treasuries prices found some support however from an
announcement by the Bank of Japan that its open-ended commitment
to buy assets would kick in only next year, disappointing those
who expected more aggressive measures. 
    The National Association of Realtors said U.S. existing home
sales dropped 1.0 percent last month to a seasonally adjusted
annual rate of 4.94 million units. While that was still the
second highest rate of sales since November 2009, when a federal
tax credit for home buyers was due to expire, it was below the
median forecast of a 5.1 million-unit rate in a Reuters poll.
    "(The) existing home sales number was a little bit of a
disappointment. Housing data has been improving over the past
several months, but what will be important is the spring buying
season. That data will show if this so-called recovery in
housing continues," said Jonathan Garber, macro analyst at
Briefing.com in Chicago.
    Thirty-year Treasury bonds were trading 2/32
lower in price with their yields little changed from late Friday
at 3.03 percent.
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