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TREASURIES-Prices near flat as auctions offset budget fears
December 10, 2012 / 7:48 PM / 5 years ago

TREASURIES-Prices near flat as auctions offset budget fears

* No visible signs of progress in "fiscal cliff" impasse
    * Doubts on whether Italy will continue economic reforms
    * 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 worries about budget squabbles in
Washington were offset by investors pushing for price
concessions ahead of $66 billion in debt sales this week.
    Treasuries rose early on a safety bid as investors fretted
that fighting among U.S. lawmakers would push the country into a
fiscal crisis, along with political rumblings in Italy and
expectations for further monetary policy easing by the Federal
Reserve when it meets this week.
    But gains were trimmed as the Federal Reserve bought 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 met on Sunday but reached no
agreement 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. 
    Nor was the news abroad any more calming to jittery markets.
    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 with stabilizing the country's bond markets.
    But former Prime Minister Silvio Berlusconi's center-right
party withdrew support for Monti last week, and Berlusconi said
he could run to become a premier for a fifth time.
    His comment raised fears that Monti's successor may not
continue his economic reforms and Italy could again come to the
forefront of the euro zone debt crisis. 
    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
01/32 higher in price to yield 1.620 percent, from 1.62 percent
late Friday, while 30-year bonds were 02/32 higher
to yield 2.807 percent, compared with Friday's 2.81 percent.
    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 on the
equity market direction, news of the fiscal cliff, and the
set-up for this week's supply of three-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 that begins on Tuesday. 
    Many investors expect the Fed at the close of the meeting
will announce it will buy $45 billion per month of longer-dated
Treasuries beginning in January to replace the current Operation
Twist stimulus program that 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 would expand the central bank's balance sheet.

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