US debt prices rise

US government debt prices rose on Thursday on safe-haven demand from investors nervous about the lack of progress in budget talks in Washington. A mildly disappointing report on US economic growth, together with the Federal Reserve's steady bond purchases, underpinned support for bond prices and lifted benchmark debt prices for a fourth straight session.
Gains were kept in check, however, with market participants shying away from pushing yields significantly lower as the Treasury auctioned $29 billion of seven-year notes. Treasuries trade was choppy as investors reacted to remarks from Democratic and Republican leaders on their talks to prevent a budget crisis. A series of tax hikes and spending cuts will phase in next year if a budget compromise is not reached, increasing concern that the world's biggest economy will tip back into recession.
Republican US House of Representatives Speaker John Boehner said on Thursday there was no substantive progress made in the budget negotiations. This appeared to be a change in tone from his remarks less than 24 hours earlier when he said he was "optimistic" about reaching a deal. Democratic Senate Majority Leader Harry Reid said later his party was still waiting for a reasonable proposal from Republicans. Fading optimism about a budget compromise any time soon bumped up bids for Treasuries.
"It is largely the fear around the fiscal cliff," said David Coard, head of fixed-income sales and trading at The Williams Capital Group in New York. "The market is losing the little bit of confidence that the two sides would be able to avert the fiscal cliff, especially in the aftermath of the speech by Boehner." Benchmark 10-year Treasury notes traded 6/32 higher in price to yield 1.62 percent, down from 1.64 percent late Wednesday. However, despite the four days of price gains, yields remain well within a range of 1.54 percent to 1.89 percent that has held since the beginning of August.
"There is very little conviction with all the political headlines," said Carl Lantz, chief US interest rate strategist at Credit Suisse in New York. Thirty-year Treasury bonds traded 7/32 higher to yield 2.79 percent from 2.80 percent. The Treasury sold seven-year notes at a high yield of 1.045 percent, rounding out this week's offerings of a total of $99 billion of short-to-medium term US government debt. Heading into such auctions, investors often move to push yields higher, hoping for a price concession.
Treasuries prices were supported by the Federal Reserve buying $4.74 billion of securities maturing February 2021 through November 2022 as part of its "Operation Twist" stimulus program. It is a busy week for the Fed in terms of purchases of longer-term debt, buying about $15 billion of Treasuries in five operations so far, with another purchase of $1.75 billion to $2.25 billion scheduled for Friday.