Treasuries edge higher

US government debt prices edged higher on Thursday on worries about protracted budget talks in Washington and a showdown between Israel and the Palestinians, but safe-haven gains were limited by sentiment that the market might be overbought.
With President Barack Obama winning a second term and Congress still divided between the two major political parties, investors fear they would not reach a timely deal to avert a series of automatic tax hikes and spending cuts known as the fiscal cliff which will come into effect early in 2013, pushing a still fragile US economy back into recession.
This worry has fed bids for low-risk Treasuries and a steep sell-off in global stock markets. Since the November 6 election, the Standard & Poor's 500 index has fallen about 5 percent.
Neither the White House nor top Republican lawmakers have shown they are anywhere close to arriving at a compromise, analysts said. "Everybody is focused on the fiscal cliff and slowing economic growth," said James Barnes, senior fixed income manager at National Penn Investors Trust Co in Wyomissing, Pennsylvania. "The fiscal cliff is not going to be resolved any time soon." Benchmark Treasury yields have fallen 18 basis points in six sessions to levels which some analysts and investors consider expensive.
The 10-year Treasury note was up 3/32 on the day in price at 100-13/32 after trading in a range of 13/32. The 10-year yield was steady at 1.579 percent, about 20 basis points higher than its record low set in late July. "These are not attractive yields, but you see bids across the curve," said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York.
Treasuries prices bounced back from initial losses on surprisingly weak figures on employment and factory activity in parts of the US east coast area. However, economists blamed the surge in weekly jobless claims and a decline in manufacturing in New York and the Mid-Atlantic region on superstorm Sandy that shuttered Wall Street and left tens of thousands of people out of work. Investors clung to their safe-haven, albeit pricey Treasuries, partly on news two rockets fired from the Gaza Strip targeted Tel Aviv, a move that raised the stakes in a showdown between Israel and the Palestinians. Israel warplanes bombed targets in and around Gaza for a second day. The inflation breakeven rate or the yield difference between 10-year Treasury Inflation-Protected Securities and regular 10-year Treasury notes fell nearly 2 basis points to 2.37 percent.