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TREASURIES-Prices steady as auctions offset fiscal crisis worries
December 10, 2012 / 5:33 PM / 5 years ago

TREASURIES-Prices steady as auctions offset fiscal crisis worries

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

    By Chris Reese
    NEW YORK, Dec 10 (Reuters) - U.S. Treasury debt prices were
little changed on Monday as concerns over protracted budget
negotiations in Washington were offset by investors pushing for
price concessions ahead of $66 billion of debt sales this week.
    Treasuries began the day trading higher with safe-haven
support due to worries over the possibility of a U.S. fiscal
crisis, along with political rumblings in Italy and expectations
for further monetary policy easing by the Federal Reserve.
    Gains were trimmed however in the wake of the Federal
Reserve purchasing nearly $2 billion of Treasuries maturing
February 2036 through November 2042 as part of its "Operation
Twist" stimulus program. 
    President Barack Obama and Republican Speaker of the House
of Representatives John Boehner did not 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. 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. 
    Treasuries were supported by "the prospect of more Fed
buying and global uncertainties and very weak growth/recession
forecasts into 2013, not to mention the fiscal cliff," said
Richard Gilhooly, interest rate strategist at TD Securities in
New York. 
    Benchmark 10-year Treasury notes were trading
1/32 lower in price to yield 1.63 percent, up slightly from 1.62
percent late Friday, while 30-year bonds were 2/32
lower with their yields little changed from Friday at 2.81
    The Treasury will sell $32 billion of three-year notes on
Tuesday, $21 billion of 10-year notes on Wednesday and $13
billion of 30-year bonds on Thursday. Investors often move to
undercut prices heading into such auctions.
    "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. Analysts
say the Fed has few shorter-dated Treasuries left to sell but is
very likely to continue buying longer-dated debt next year,
which will expand the central bank's balance sheet.

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