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

Fiscal Cliff

More than $600 billion in tax increases and spending cuts will automatically start taking effect in January unless Congress acts. Failing to avert the fiscal cliff may push the economy in recession, according to the Congressional Budget Office.

The U.S. sold $35 billion of two-year notes yesterday. It will sell $29 billion of seven-year debt tomorrow and $14 billion of five-year Treasury Inflation Protected Securities on Dec. 20.

The five-year notes scheduled for sale yielded 0.76 percent in pre-auction trading, compared with 0.641 percent at the previous auction of the securities on Nov. 28.

Investors bid for 2.89 times the amount of available debt last month, compared with 2.73 times on Oct. 24.

Improved Performance

“Auction performance has improved in the five-year sector recently,” Mikael Nilsson Rosell, an analyst at Barclays Plc in London wrote in an e-mailed report. The firm is one of 21 primary dealers obliged to bid in U.S. debt auctions. “Since dropping sharply in the second quarter, the bid-cover ratio has recovered.”

The Federal Reserve will buy as much as $2.25 billion of Treasuries today maturing between February 2036 and November 2042 and sell as much as $8 billion of government debt due between June 2015 and November 2015, according to the New York Fed’s website. The transactions are part of a program known as Operation Twist, under which the central bank replaces shorter- maturity notes in its holdings with longer-dated debt.

With that set to expire this month, the Fed will start to buy U.S. government bonds next year in an expansion of a round of so-called quantitative easing that doesn’t involve selling shorter-term securities. Fed Bank of Dallas President Richard Fisher, scheduled to speak today, said last week that the central bank may never be able to exit its unprecedented bond- buying program.

U.S. gross domestic product expanded an annualized 2.8 percent in the three months ended Sept. 30, compared with the previously reported 2.7 percent growth, according to the median estimate of economists surveyed by Bloomberg News. The Commerce Department will release the updated figure on Dec. 20.

Bloomberg News

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