MW: Treasurys slip; fiscal cliff still a hindrance
Washington talks seen largely on hold ahead of Thanksgiving
By Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices fell on Monday, pushing yields up from their lowest since late August, as optimistic comments from leading Democrats over the weekend about resolving the so-called fiscal cliff set the stage for strong gains in U.S. stock futures.
Still, investors are preparing for going over the fiscal cliff — a package of tax and spending measures that expire at year end and threaten to push the U.S. economy into a recession.
Even if not a full-blown recession, seemingly all analysts expect negotiations in Washington to slow growth in some way and include some rising taxes, all of which gives traders enough reason to book profits on stocks at current tax rates. Read: Treasury yields hit lowest since August on fiscal-cliff talks.
“There is a cost to deficit reduction,” said bond strategists at CRT Capital Group. “Whether what we pay in taxes goes up or government spending goes down, there will be some extraction from GDP and it won’t be painless.”
Yields on 10-year notes 10_YEAR +2.91% , which move inversely to prices, rose 4 basis points to 1.62%. A basis point is one one-hundredth of a percentage point.
Yields on 30-year bonds 30_YEAR +1.69% increased 4 basis points to 2.77%.
Five-year note yields 5_YEAR +4.07% added 3 basis points to 0.64%.
Companies have already been scaling back spending and investment plans due to uncertainty in the economic outlook, in part because of the very cloudy fiscal picture, The Wall Street Journal reported. Read wsj.com: Investment falls off a cliff.
For the week, trading volatility may be heightened as bond markets will be closed Thursday for Thanksgiving and close early Friday, and little more in the way of negotiations is expected from Washington in the short run due to the holiday.
“The week ahead offers a truncated session and more holidays for Congress than for you and I, which translates to no progress on the overriding matter of the fiscal-cliff debates,” CRT’s David Ader and Ian Lyngen wrote in a note. “Thus we expect more of the same exacerbated by the limited liquidity.”
Deborah Levine is a MarketWatch reporter, based in San Francisco.
