Treasuries little changed as fiscal cliff deadline looms

Treasuries were little changed as President Barack Obama plans to return to Washington amid stalled talks on the so-called fiscal cliff that’s poised to cut spending and raise taxes at the end of the year.

U.S. house prices in 20 cities probably rose 4 percent in the 12 months ended Oct. 31, the fastest growth since June 2010, based on a Bloomberg News survey of economists before the S&P/Case-Shiller report. Congress will return Dec. 27 amid calls for action in the Senate with five days before a deadline that would trigger more than $600 billion in tax increases and spending cuts that may cause a U.S. recession.

“Fiscal cliff and the budget negotiations is the dominant news item this week,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. “Not only do we have quiet markets in the U.S., but Europe was closed for Boxing Day.”

Benchmark U.S. 10-year yields were little changed at 1.77 percent at 8:10 a.m. in New York, according to Bloomberg Bond Trader prices. The price of the 1.625 percent security due in November 2022 was 98 20/32. The rate has climbed from the record low of 1.38 percent set in July. It compares with the average of 3.66 percent for the past decade.

U.S. holiday sales growth slowed by more than half this year after gridlock in Washington soured consumers’ moods and Hurricane Sandy disrupted shopping, MasterCard Advisors SpendingPulse said. Retail sales grew by 0.7 percent from Oct. 28 through Dec. 24, the Purchase, New York, research firm said yesterday.

Yield Spreads

The extra yield 10-year Treasuries offer over same-maturity German bunds approached the most in eight months on speculation the U.S. economy will grow faster than Europe’s in 2013.

The difference between the two rates was 39 basis points. The spread widened to 41 basis points on Dec. 18, which was the most since April.

“U.S. economic growth is much faster than European growth,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “The U.S. 10-year yield may go a bit higher. The rise in German yields will lag behind the U.S.”

Trading in Treasuries closed in Japan and will stay shut in the U.K. for Boxing Day, according to the Securities Industry and Financial Markets Association. It will open as usual in New York after being shut yesterday around the world for Christmas, according to the website.

Germany’s 10-year note yielded 1.38 percent as of the end of last week before trading stopped for the Christmas holidays.

Bunds Demand

German bonds advanced this year as Europe’s debt crisis drove demand for the relative safety of the nation’s securities.

Treasuries lagged behind as the U.S. unemployment rate fell to 7.7 percent in November, the lowest level since 2008.

U.S. new-home sales climbed to a 380,000 annual rate in November, the most since April 2010, according to a Bloomberg News survey of economists before the Commerce Department reports the figure tomorrow.

A Dec. 28 report from the National Association of Realtors will probably show pending sales of existing homes climbed 1 percent in November from the previous month for a third-straight gain, according to the survey median.

The U.S. economy will expand 2 percent in 2013 versus 0.8 percent for Germany, separate surveys showed.

Japan’s 10-year government bond yield increased two basis points, or 0.02 percentage point, today to 0.785 percent. It has risen from this year’s low of 0.685 percent set earlier this month.

Bloomberg News

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