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TREASURIES-Bond prices gain on standoff in U.S. budget talks
November 28, 2012 / 8:51 PM / 5 years ago

TREASURIES-Bond prices gain on standoff in U.S. budget talks

* Boehner, Obama remarks soothe some "fiscal cliff" worries
    * U.S. sells $35 billion of new five-year notes
    * Fed buys Treasuries in two operations
    * U.S. new home sales unexpectedly fall in October


    By Chris Reese
    NEW YORK, Nov 28 (Reuters) - A lack of progress in talks in
Washington to avert a fiscal crisis mostly lifted U.S.
government bond prices for a third straight day on Wednesday as
the government sold $35 billon of five-year Treasury notes.
    Bond prices pulled back from earlier highs after U.S. House
of Representatives Speaker John Boehner said he was "optimistic"
on reaching a budget deal before the end of the year to avoid a
crisis. President Barack Obama later said he hoped he and
Congress can reach agreement before Christmas to avoid the
"fiscal cliff" and shrink the budget deficit.  
    But the market stayed in positive territory given the
absence of specifics on how the two major political parties plan
to arrive at a compromise on possible tax increases and spending
cuts.
    Investors are worried gridlock between the White House and
Congress over the series of automatic tax increases and spending
cuts worth $600 billion that could phase in next year may well
push the United States back into recession. Those worries have
underpinned safe-haven support for the bond market since the
U.S. presidential election three weeks ago.
    Investors dialed back hopes for a timely budget deal after
Senate Majority Leader Harry Reid, a Democrat from Nevada, said
on Tuesday he was disappointed there has been "little progress"
in the negotiations. 
    "Yesterday, it became clear that a quick resolution of the
fiscal cliff is highly unlikely," said Christopher Low, chief
economist at FTN Financial in New York.
    The Wednesday remarks from Boehner, the top Republican
lawmaker, were similar in tone to what he has said previously,
and the bond market remained skeptical a fiscal deal would be
done before year-end.
    "There is some more optimism from (Boehner's) comments, but
they still have not agreed on the details on how they will raise
more revenues and how they will cut more spending, so there's a
lot of work to be done," said Sean Incremona, senior economic
analyst at 4Cast Ltd in New York.
    Safe-haven buying pushed benchmark 10-year Treasury notes
 up 6/32 in price to yield 1.62 percent, down from
1.64 percent late Tuesday and below the 100-day moving average
near 1.65 percent. Trade volume was above average, according to
data from Tradeweb.
    "Much of the bid continues to be a function of concerns that
the fiscal cliff will prove more of a train wreck than an
opportunity for bipartisan cooperation," said Ian Lyngen, senior
government bond strategist at CRT Capital Group in Stamford,
Connecticut.
    U.S. stocks reversed earlier losses after Boehner's
remarks. They had hit session lows earlier after the government
said new single-family home sales fell slightly in October and
revised sharply lower its estimate for September sales, denting
optimism over the housing market recovery, one of the brighter
sectors of the economy. 
    On the supply front, the Treasury Department continued its
month-end sales of new short-to-medium-term debt, totaling $99
billion this week.
    It auctioned $35 billion in five-year notes at a high yield
of 0.641 percent. The sale followed record demand for $35
billion of two-year notes on Tuesday. It will sell $29 billion
of seven-year debt on Thursday.
    Meanwhile, the Federal Reserve bought conducted two separate
purchases of Treasuries under its "Operation Twist" stimulus
program, which is aimed at lowering long-term interest rates to
help the economy.
    The Fed bought a total of $1.85 billion of  Treasuries
maturing in February 2036 through November 2042 in the first
operation on Wednesday morning and then purchased $4.57 billion
of Treasuries maturing November 2018 through November 2020 on
Wednesday afternoon.

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