NEW YORK: US Treasury debt prices were little changed on Monday as concerns over protracted budget negotiations in Washington were offset by investors pushing for price concessions ahead of $66 billion of debt sales this week.
Treasuries began the day trading higher with safe-haven support due to worries over the possibility of a US fiscal crisis, along with political rumblings in Italy and expectations for further monetary policy easing by the Federal Reserve.
Gains were trimmed however in the wake of the Federal Reserve purchasing nearly $2 billion of Treasuries maturing February 2036 through November 2042 as part of its "Operation Twist" stimulus program.
President Barack Obama and Republican Speaker of the House of Representatives John Boehner did not reach an agreement on Sunday on ways to stop large-scale, automatic fiscal tightening from kicking in next year.
Economists fear the "fiscal cliff" of $600 billion worth of tax increases and spending cuts could send the US economy back into recession. Lawmakers only have a few weeks left to try to avert it.
In Italy, Prime Minister Mario Monti on Saturday said he would resign once the budget for 2013 was approved. Monti was trusted by investors to bring down Italy's huge debt and is credited for stabilizing the country's bond markets.
The announcement came after former Prime Minister Silvio Berlusconi's party withdrew support for Monti last week and he said he could run to become a premier for a fifth time.
This raised fears Monti's successor may not continue his economic reforms and Italy may come to the forefront of the euro zone debt crisis again.
Treasuries were supported by "the prospect of more Fed buying and global uncertainties and very weak growth/recession forecasts into 2013, not to mention the fiscal cliff," said Richard Gilhooly, interest rate strategist at TD Securities in New York.
Benchmark 10-year Treasury notes were trading 1/32 lower in price to yield 1.63 percent, up slightly from 1.62 percent late Friday, while 30-year bonds were 2/32 lower with their yields little changed from Friday at 2.81 percent.
The Treasury will sell $32 billion of three-year notes on Tuesday, $21 billion of 10-year notes on Wednesday and $13 billion of 30-year bonds on Thursday. Investors often move to undercut prices heading into such auctions.
"With the lack of data today, the market will focus the equity market direction, news of the fiscal cliff, and the set-up for this week's supply of 3-year, 10-year, and 30-year paper," said Tom di Galoma, managing director at Navigate Advisors LLC in Stamford, Connecticut.
A better-than-expected November jobs report on Friday did little to alter expectations that the US Federal Reserve is likely to muster some additional bond buying plans at its two-day meeting which will end on Wednesday.
Many investors expect the Fed to announce it will buy $45 billion per month of longer-dated Treasuries beginning in January to replace the current "Operation Twist" stimulus program which expires at the end of December.
Under Operation Twist, the central bank is selling shorter-dated US government debt and buying longer-dated Treasuries to extend the duration of its balance sheet. Analysts say the Fed has few shorter-dated Treasuries left to sell but is very likely to continue buying longer-dated debt next year, which will expand the central bank's balance sheet.
Center>Copyright Reuters, 2012
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