February 19, 2013 / 4:27 PM / in 5 years

TREASURIES-Prices steady, underpinned by spending cut worries

* Investors worry U.S. spending cuts will hit economic
    * German ZEW sentiment highest since April 2010
    * Fed buying longer-dated debt in four operations this week

    By Chris Reese
    NEW YORK, Feb 19 (Reuters) - U.S. Treasury debt traded
little changed in price on Tuesday as worries over the impact of
potential government spending cuts on the U.S. economy and
political uncertainty in Italy underpinned U.S. government debt
despite some strength in stocks.
    Treasuries dipped in price overnight after a measure of
German analyst and investor sentiment soared to the highest
level since April 2010, according to the ZEW think tank. The
data boosted the euro and European shares and caused a temporary
dip in safe-haven German Bunds and U.S. debt. 
    But the price dip was immediately met by buying interest
from investors concerned that an economic recovery could be
derailed by across-the-board U.S. government spending cuts of
about $85 billion that could take effect on March 1 if lawmakers
fail to agree on a plan to avoid them.
    Also supporting Treasuries, one of the main assets used as a
refuge from the euro zone's debt troubles, were concerns that
Italian elections on Feb. 24-25 could result in a fragmented
parliament that could hamper future reform efforts.
    Benchmark 10-year Treasuries were trading 1/32
higher in price, with the yield little changed from late Friday
near 2.00 percent.
    Expectations of only tepid economic growth had some analysts
calling for yields to hover near recent ranges.
    "A sub-par economic recovery, sizable fiscal tightening and
ultra-accommodative Fed policy will anchor 10-year rates near 2
percent in 2013," said Priya Misra, head of U.S. rates strategy
at Bank of America Merrill Lynch in New York.
    "We continue to expect that rates will spend most of the
year between 1.75 percent and 2 percent, with only modest risks
of a sustained move above 2.25 percent," Misra said.
    Thirty-year bonds were trading 4/32 higher in
price to yield 3.17 percent, also little changed from late
    U.S. markets were closed on Monday for the Presidents Day
holiday, and the work week began slowly on Tuesday with little
in the way of top-tier economic data on the schedule.
    Investors will closely watch several releases later in the
week, with housing starts and homes sales data on Wednesday and
Thursday, along with January producer and consumer price
indexes. Minutes from the Federal Reserve's latest policy
meeting in January will also come out on Wednesday afternoon.
    One guaranteed buyer of Treasuries was the Federal Reserve,
which on Tuesday purchased $1.45 billion of U.S. government debt
maturing February 2036 through February 2043. The central bank
will buy longer-dated debt in three more operations through the
rest of the week as part of its most recent economic stimulus
    Yields were little impacted by data showing U.S.
home-builder confidence in the market for single family homes
eased slightly in February from last month's seven-year high, as
builders faced higher material costs.
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