TOKYO: US Treasuries were firm in Asia on Monday, as automatic "sequestration" spending cuts officially took effect after political leaders failed to agree on steps to avoid them -- raising worries that fiscal drag could crimp US economic growth.
The yield on 10-year notes stood at 1.846 percent, little changed from late US levels last week and near one-month low of 1.836 percent set last week.
President Barack Obama and congressional Republican leaders failed last week to find an alternative budget plan to avert the $85 billion across-the-board ending cuts.
Congress and Obama could still halt the cuts in the weeks to come, but neither side has expressed any confidence it will be able to do so.
Bond yields have fallen into a new, slightly-lower range since a dramatic rally last Monday following Italy's inconclusive election, which has sparked worries political crisis could undermine Italy's efforts to fix its debt problems.
"No one thinks Italy is going to default. But unless you have a government, the European Central Bank cannot would not be able to buy Italian debt. And you can't ignore the fact that Italian voters said 'no' to austerity," said a trader at a Japanese bank.
Since the election Italian political parties have been wrangling over how to form a government as no major political bloc won full control of parliament, raising the spectre of another election.
Treasuries were unfazed by data from the Institute for Supply Management on Friday showing production at US factories grew last month at its fastest pace since June 2011.
Taking the shine off the data, however, was a tepid growth in consumer spending in January as well as slump in disposable income after tax cuts began to expire earlier this year.
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