Treasuries rise a third day amid pessimism on fiscal-cliff talks

Treasuries advanced for a third day amid speculation U.S. lawmakers will fail to reach agreement in time to avoid the so-called fiscal cliff of more than $600 billion in spending cuts and tax increases.

Ten-year notes headed for their first weekly gain in a month, pushing the yield below its 200-day moving average of 1.74 percent, as President Barack Obama summoned congressional leaders to a White House meeting today while the year-end deadline approaches. The Federal Reserve plans to buy as much as $5.25 billion of Treasuries today, the last purchase under its Operation Twist stimulus program.

“The probability that we are going over the cliff is over 50 percent and rising, which will continue to strengthen bonds,” Adrian Miller, director of global market strategy at GMP Securities LLC in New York, said in a telephone interview. “The bouts of optimism that sprang up in the market late yesterday have been extinguished.”

The benchmark 10-year yield slid four basis points, or 0.04 percentage point, to 1.7 percent at 10:13 a.m. in New York, according to Bloomberg Bond Trader prices. It was the lowest level since Dec. 14. The 1.625 percent note maturing in November 2022 rose 11/32, or $3.44 per $1,000 face amount, to 99 10/32. The yield has declined six basis points this week.

Yields on 30-year bonds decreased four basis points to 2.87 percent.

Previous Bets

The long-bond yields reached a three-month high of 3.03 percent on Dec. 18, and 10-year yields touched a seven-week high of 1.85 percent, on bets that U.S. leaders would resolve the budget showdown.

Treasuries remained higher even after the National Association of Realtors reported pending home sales in the U.S. rose for a third month in November. The group’s index climbed 1.7 percent to 106.4, the highest reading since April 2010.

“The only thing the market is focused on is the fiscal- cliff negotiations,” said Donald Ellenberger, who oversees about $10 billion as co-head of government and mortgage-backed securities at Federated Investors Inc. in Pittsburgh. “The fundamentals take a back seat to the headlines.”

Obama, who had been negotiating one-on-one with House Speaker John Boehner, will meet today with Republicans Boehner and Senate Minority Leader Mitch McConnell, as well as Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats.

Lawmakers are disputing which party would be responsible for missing the deadline for a debt deal, a failure that could hurt the U.S. credit rating and cause an economic recession. The meeting will be held at 3 p.m. Washington time.

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