TOKYO: US Treasuries inched higher on Wednesday, taking a breather from the previous session's selloff that sent benchmark yields to their highest level since October on signs of progress in resolving the US "fiscal cliff" budget crisis.
Negotiations to avert the tax hikes and spending cuts appeared to progress toward a deal as House of Representatives Speaker John Boehner kept the support of his Republican colleagues for compromises in talks with US President Barack Obama.
"Bonds were sold as we can now see a goal in the fiscal cliff talks," said Hiroki Shimazu, senior market economist at SMBC Nikko Securities.
"I think it is possible that they will reach a deal before the year-end but even if they can't for some scheduling reasons, we don't have to worry about the US going down the cliff," he said, adding that the benchmark 10-year yield could rise to around 2.0 percent when the two sides finally agree on a deal.
Some Japanese investors have viewed the 1.8 percent-level as a potential target to buy 10-year notes, but as year-end holidays approach, they are unlikely to make big moves now, Shimazu said.
Supply concerns also kept gains in check. The Treasury will sell $29 billion in seven-year notes later on Wednesday, followed by $14 billion in five-year Treasury Inflation-Protected Securities (TIPS) on Thursday. It sold $35 billion in 5-year notes on Tuesday.
"There were auctions on Tuesday, Wednesday and Thursday last week, and more sales this week. From a supply/demand point of view, there is kind of a heavy feeling," said Arihiro Nagata, head of foreign bond trading at Sumitomo Mitsui Banking Corp.
Yields on 10-year Treasuries eased to 1.80 percent on Wednesday in Asian trade, from 1.84 percent in late US trade on Tuesday.
Yields on 30-year Treasuries fell to 2.89 percent from 3.02 percent on Tuesday.
Center>Copyright Reuters, 2012
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