TREASURIES-U.S. bond prices rise as higher yields act as lure
NEW YORK, Dec 19 (Reuters) - U.S. Treasuries rose on Wednesday as investors looking to invest cash before year end were drawn by yields that neared two-month highs.
No sign of progress in Washington to reach a budget deal to avert $600 billion of tax increases and spending cuts before the end of the year also encouraged the bid for safe-haven U.S. government debt.
The Federal Reserve's purchase of $1.889 billion in coupons maturing from 2036 to 2042 supported the long end of the maturity curve.
But the main dynamic was that "the longer end of the Treasury market got a little cheap, and people just started coming in and buying them," said Wilmer Stith, portfolio manager at the Wilmington Broad Market Fund in Baltimore. "They're trying to make sure any cash they have before year-end is put to work."
Traders cited talk that a big bond portfolio on the West Coast was among the buyers.
Benchmark 10-year Treasury notes rose 11/32 in price, their yields easing to 1.78 percent from 1.82 percent late on Tuesday.
The sentiment over the budget talks in Washington to avert the so-called fiscal cliff of tax hikes and spending cuts shifted to one of concern from one of optimism earlier in the week.
The White House on Wednesday said President Barack Obama would veto a House of Representatives Republican proposal because it does not do enough to balance spending cuts and tax increases. House Speaker John Boehner said the Republican plan would extend low tax rates, except on income of $1 million and above.
One trader said optimism about House Republicans coming together with Obama to avoid the fiscal cliff was "deteriorating a little bit, and that's helped bond prices."
But markets have not given up on the notion of resolution this year or early next, said Stephen Wood, chief market strategist with Russell Investments in New York.
"Is there a grand compromise? No. But Obama is moving. Boehner is moving. Financial markets will be choppy," he said.
From an economic standpoint, the United States is "certainly doing better than other parts of the world" and thus continues to enjoy a safe-haven premium, Wood said.
Strategists said 10-year Treasury notes found support at the 1.80 percent yield level, which attracted buying.
Supply of U.S. debt also kept a lid on gains. The Treasury will sell $29 billion in seven-year notes later on Wednesday, followed by $14 billion in five-year Treasury inflation-protected securities on Thursday. It sold $35 billion in five-year notes on Tuesday.
Tuesday's sale drew solid demand, selling at a high yield of 0.769 percent, around half a basis point higher than where the notes traded before the auction.