BOND REPORT: Treasurys Fall On Global Data, Greek Buyback

Date : 12/03/2012 @ 9:46AM
Source : Dow Jones News

BOND REPORT: Treasurys Fall On Global Data, Greek Buyback

By Deborah Levine, MarketWatch

SAN FRANCISCO (MarketWatch) -- Treasury prices fell slightly on Monday, pushing yields up, following positive global manufacturing data and a good reception to the beginning of Greece's debt buyback.

But the focus remains on negotiations over U.S. tax and spending measures, which haven't progressed much.

There's also economic data this week that could play a role in the Federal Reserve's decision next week on continuing Treasury purchases.

Yields on 10-year notes , which move inversely to prices, rose 3 basis points to 1.65%. A basis point is one one-hundredth of a percentage point.

Yields on 30-year bonds added 4 basis points to 2.85%.

Five-year yields rose 2 basis points to 0.64%.

Treasury Secretary Timothy Geithner and House Speaker John Boehner solidified their stances on the fiscal cliff on Sunday, but Geithner predicted Republicans will in the end accept higher tax rates and reach a budget deal.

"If the fiscal cliff is the market's focus for 90% of the movement we'll get between now and year-end, then we don't have a lot of expectations for the week ahead to do more than fixate and shift with a given headline," said bond strategists at CRT Capital Group.

Ten-year yields are likely to remain between 1.54% and 1.75%, they said.

Also providing support for government bonds, analysts widely expect the Federal Reserve to extend the long-term Treasury purchase portion of its so-called Operation Twist.

This would be in addition to its program of buying mortgage bonds each month in an effort to ease financial conditions enough to lower the unemployment rate. The central bank's last Federal Open Market Committee meeting of the year is next week. Before that -- this Friday -- the U.S. will release its employment report for November.

"We expect Operation Twist to be converted to outright purchases at the December FOMC meeting," analysts at Barclays said. That's still going to be in the background as other markets keep the spotlight on the fiscal debate in Washington.

"Negotiations between the political parties about how to resolve the fiscal cliff continue. We expect safe-haven yields to remain resilient into year-end, given that negotiations are likely to be protracted," Barclays analysts added.

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