U.S. 10-year tields touch seven-week high on fiscal cliff talks

Treasury 10-year yields touched the highest level in seven weeks amid speculation talks are progressing in Washington to resolve a budget showdown that threatens to send the economy into recession.

U.S. government securities pared losses before the Treasury sells $35 billion of five-year debt in the second of four note auctions this week totaling $113 billion. President Barack Obama, in talks yesterday with House Speaker John Boehner, lowered his tax revenue demand by $200 billion and offered to start tax-rate increases at $400,000 in income instead of $250,000.

“Treasuries are reacting to the continued progress on Washington negotiations,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “Markets like the middle-ground tone being struck.”

The benchmark 10-year yield was little changed at 1.78 percent at 9:06 a.m. New York time, according to Bloomberg Bond Trader prices. The yield touched 1.79 percent, the highest level since Oct. 26. The price of the 1.625 percent note due in November 2022 was 98 5/8.

The five-year note yield traded at 0.73 percent after earlier rising to 0.75 percent, the highest level since Nov. 6.

Bets Raised

Investors in Treasuries raised bets prices of the securities will drop, resulting in the most net-short positions in the week ended yesterday since June, according to a survey by JPMorgan Chase & Co.

The proportion of net shorts, or bets the securities will fall in value, was at six percentage points in the week ending yesterday, according to JPMorgan, up from four percentage points the week ended Dec. 10.

The percent of outright longs was steady at 15 percent, while the percent of outright shorts, or bets the securities will fall in value, rose to 21 percent, from 19 percent in the week ended Dec. 10, according to the survey. Investors cut neutral bets to 64 percent from 66 percent, the survey reported.

Yields rose earlier amid optimism on the budget talks in Washington. Obama’s revised plan would raise $1.2 trillion in taxes in the next decade and cut $1.22 trillion in spending, said a person familiar with the talks. Obama would accept a new inflation yardstick that would reduce Social Security cost-of- living increases, according to the person, who sought anonymity.

Boehner and Majority Leader Eric Cantor will give House Republicans an update on the negotiations today, said a leadership aide who requested anonymity.

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