TREASURIES-Bond prices rise on Fed buying, range holds
* Fed buys $1.84 billion long-dated bonds for Operation Twist
* Corporate debt supply mitigates "fiscal cliff" jitters
* Ten-year note yield finds support with 100-day moving average
NEW YORK, Dec 4 (Reuters) - U.S. Treasuries prices rose on Tuesday as some traders scrambled to buy long-dated debt to resell to the Federal Reserve after the central bank's latest purchase for a bond program aimed at lowering interest rates and helping the economy. Weakness in Wall Street stocks also revived moderate safe-haven demand for U.S. government debt, traders said. "You have the Fed buyback and stocks are a little weaker," said Thomas Roth, a senior Treasuries trader at Mitsubishi UFJ Securities USA in New York. Primary dealers submitted a smaller-than-usual $4.047 billion in bonds for the U.S. central bank to buy. The Fed's subsequent $1.837 billion purchase of Treasuries maturing February 2036 to November 2042 caused these dealers, who do business directly with the Fed, to scramble for longer-dated issues on the open market, traders and analysts said.
Even with Tuesday's moderate gains, the bond market remained in its recent trading range as most investors kept to the sidelines in the absence of progress on the budget negotiations in Washington, seen as critical to averting a fiscal crisis and another U.S. recession. Competition from corporate bond supply and some early preparation for next week's federal debt sales mitigated concerns about the federal budget talks, analysts said. "When things are drifting like this, we see some money gravitating to investment-grade corporate bonds," said Jim Vogel, interest rate strategist with FTN Financial in Memphis, Tennessee. Analysts expected companies to sell $25 billion in debt this week, according to IFR, a unit of Thomson Reuters. Benchmark 10-year Treasury notes were up 4/32 with their yields at 1.606 percent, down 1.6 basis points from late on Monday. The 10-year yield has found chart support at its 100-day moving average at 1.65 percent, according to Reuters data. Wall Street stocks were modestly lower midday Tuesday after opening flat. Bond prices erased initial losses tied to news that Greece received better-than-expected terms for its debt buyback, which stoked hopes it will continue to get financial help to avoid a chaotic default and worsen the region's debt crisis.
Treasuries have moved in a tight range since the U.S. presidential election nearly a month ago on the likelihood of a contentious process between President Barack Obama and Congressional Republican lawmakers to avoid the "fiscal cliff." The absence of a budget deal before year-end would cause a fiscal contraction as a series of automatic tax increases and spending cuts worth $600 billion are implemented in the new year. On Tuesday, Republican leaders kicked two of the most conservative members off the House Budget Committee, which was perceived as a move to advance a deal with Democrats to cut the federal deficit. "It's all guesswork anyway. Why do you want to stick your neck out?," Jeff Given, portfolio manager at Manulife Asset Management in Boston said of the lack of trading. Evidence of this caution was reinforced by J.P. Morgan's latest Treasuries survey which showed 70 percent of the firm's clients said they were "neutral" or holding Treasuries equal to their portfolio benchmarks on Monday.
FED SEEN BUYING MORE BONDS Risk of a recession from failed budget talks will likely cause the Fed to cling to an ultra-loose monetary policy in an attempt to support an already wobbly economy. Fed policy-makers will meet next Tuesday and Wednesday, where they are widely expected to decide whether they will pursue further bond purchases. The Fed has been buying a combined $85 billion in Treasuries and mortgage-backed securities a month. Its Treasuries purchases have been linked to "Operation Twist," which expires at the end of December. The operation involves the sale of short-dated debt and buying of longer-dated issues on the open market.