LONDON: US Treasury prices rose on Wednesday, extending the previous day's gains on growing concern about a looming political fight in Washington to lift the federal government's debt limit.
Federal Reserve bond repurchases this week are also supporting demand for Treasuries, with yields retreating from near nine-month highs hit in early January.
Benchmark US 10-year T-notes were last 4/32 in price to yield 1.82 percent, 1.4 basis points down from late US trade and within sight of a two-week low near 1.81 percent set on Tuesday.
"We saw real money buying out of Asia, more at the long end of the curve now that supply is out of the way ... Plus the buybacks are continuing to happen in that part of the curve too," a trader said.
Perceptions that negotiations on the US borrowing limit could continue right up to a self-imposed deadline of early March, could add momentum to the rally in Treasuries - the world's most liquid debt market - despite the risk of a federal default.
The US Treasury cautioned on Monday that the United States was on track to exhaust options to meet its debt obligations between mid-February and early March.
"We continue to believe that the hurdles up ahead, predominantly in the US around the whole debt ceiling/fiscal cliff II debate, will continue to generate underlying demand for 'core' fixed income into shorter-term retracement episodes," Lloyds strategists said in a note.
"Unless a miraculous agreement comes to fruition in the meantime, we anticipate the debt ceiling/fiscal cliff double-header will go to the wire again," they said.
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