TREASURIES-Yields highest in two weeks on debt ceiling debt hopes
* Prices fall on hopes of deal to raise debt ceiling
* Treasury to sell $13 billion in 30-year bonds
* Fed to buy $1 billion-$1.5 billion in TIPS due 2018-2043
NEW YORK, Oct 10 (Reuters) - U.S. Treasuries yields rose to their highest in more than two weeks on Thursday on hopes that Congress will reach a deal to raise the debt ceiling, reducing demand for safe-haven Treasuries, and before the Treasury sells $13 billion in new 30-year debt. U.S. House of Representatives Republicans are considering signing on to a short-term increase in the government's borrowing authority to buy time for negotiations on broader policy measures, according to a Republican leadership aide.
"There is an overall feeling that a deal is imminent," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York. Set up for Thursday's auction may have also weighed on the market. The Treasury's 30-year sale is its final auction of $64 billion in new coupon-bearing debt this week. Benchmark 10-year notes fell 12/32 in price to yield 2.71 percent, the highest since September 23. Thirty-year bonds dropped 20/32 in price to yield 3.78 percent, the highest since September 20. Treasuries had largely traded sideways for the past two weeks, with many investors hesitant to enter new trades due to political gridlock in Washington. The U.S. government entered its tenth day of partial shutdown on Thursday and fears have been rising that political dysfunction could disrupt an increase in the debt ceiling. Treasuries that have payments due in mid- and late-October and November remained pressure on Thursday as many investors continued to shun debt at risk of delayed payments from the Treasury. Some buyers began to step in, however, traders said, a sign that some of worst of the selloff may be nearing an end. The current on-the-run one-month Treasury bill yields traded at 0.27 percent on Thursday, down from a five-year high of 0.36 percent on Tuesday. The cost to finance overnight trades backed by Treasuries in the repurchase agreement market shot higher on Thursday, opening at around 27 basis points before falling back to around 23 basis points, said traders. Banks and money funds have begun to stipulate that they won't accept Treasuries at risk of delayed payments to back repo trades. The Federal Reserve will buy between $1.00 billion and $1.50 billion in Treasury Inflation-Protected Securities (TIPs) due from 2018 to 2043 on Thursday as part of its ongoing purchase program.