US debt prices higher

US Treasuries prices rose on Wednesday with observers citing concern that US lawmakers might not avoid a set of spending cuts and tax hikes set for the new year that would likely damp economic growth. However, stocks were said to be up at least partly on the view a deal would be reached to mitigate that danger. "Stocks seem to be reacting positively due to the feeling a 'fiscal cliff' deal gets done soon," said Tom DiGaloma, managing director at Navigate Advisors LLC, a broker-dealer in Stamford, Connecticut.
"However, (in bonds) we are still of the view that a deal won't get done until the end of year at the earliest, or possibly by early next year." Republican leaders in the US House of Representatives said on Wednesday that talks with President Barack Obama to resolve the fiscal cliff were deadlocked.
That left bonds trading "sideways" at slightly higher levels, with some accounts selling 10- and 30-year Treasuries and buying five-year notes instead to make room for 10s and 30s to be auctioned next week, DiGaloma said. Bonds accelerated price gains and benchmark 10-year note yields fell to their lowest levels in two weeks. "Without some deal, the (bond) market is going to stay bid and there's going to be a reach for yield," said Charles Comiskey, head of Treasury trading at the Bank of Nova Scotia in New York.
Bonds also gained as the Federal Reserve completed its latest bond purchases as part of its "Operation Twist" program. The Fed bought $4.75 billion in notes due 2021 and 2022 on Wednesday as part of Operation Twist, which is designed to lower long-term borrowing rates.
Demand for US government debt also got a boost when Spain failed to meet the maximum target at a debt auction, raising concern that demand for euro zone sovereign bonds was waning. Many economists believe Spain will eventually seek a bailout from its euro zone partners. Bonds were little moved after private payrolls processor ADP said US private-sector employers added 118,000 jobs in November, just shy of economists' expectations.
Declining supply of longer-dated debt may lead the Fed to extend purchases to shorter-dated maturities than the current purchases of seven-year, 10-year and 30-year bonds. "Are they going to have to go to the five-year sector? If you look at supply, they have kind of run out of room to buy the 10-year," said BMO's Graham. Benchmark 10-year notes were last up 3/32 in price to yield 1.59 percent, down from 1.61 percent late on Tuesday. Thirty-year bonds slipped 3/32 in price, leaving their yield at 2.78 percent.