The news on Spain weakened the bid for safe-haven US government debt, as did the data showing revived growth in China, said Jason Rogan, director of Treasuries trading at Guggenheim Partners in New York. But the bond market was "fatigued" and did not muster a lot of buying force on the bond-friendly ISM data, he said. Benchmark 10-year Treasury notes were down 1/32 in late afternoon trade, their yields edging up to 1.63 percent from 1.62 percent late on Friday. The 10-year yield flirted with its 100-day moving average of 1.6519 percent earlier following an 8 basis-point decline last week, according to Reuters data.
The market seemed to have given up responding to every utterance from Washington on the potential year-end fiscal crisis known as the "fiscal cliff." Broad-based tax increases and spending cuts could automatically take effect after next month if no other agreement is reached before then. "We're trying not to get caught up in every statement," said Steve Van Order, fixed-income strategist at Bethesda, Md.-based Calvert Investments, with $12 billion in assets under management. "We've looked at it. We know the different scenarios. We have our view in place in terms of what we are doing with our portfolios."
Van Order said market volatility was pretty low. "The yield ranges we've had since August have held pretty well," he said "The Treasury auctions last week went great." Investors have absorbed debt issued by corporations as well as debt sold by the US government.
The US high-grade market began what could be another record-breaking month on Monday with December volume expected to be in the $50 billion area, according to IFR, a Thomson Reuters unit. The record for December was $51.04 billion in 2007. "Ever since (President Barack) Obama got re-elected, people expect near zero short-term interest rates and are reaching for spread," Van Order said. "Corporations had massive, record November issuance and that got absorbed pretty well."
Early selling in Treasuries stemmed from data showing Chinese manufacturing returned to growth in November for the first time in over a year. Bonds' widened losses on news that Spain formally requested the disbursement of 39.5 billion euros ($51.4 billion) of European funds to recapitalize its banking sector.
US bond prices have moved in a tight range since the US presidential election nearly a month ago on the likelihood of a contentious process between Obama and Republican lawmakers to avoid the "fiscal cliff." The absence of a budget deal before year-end would cause a fiscal contraction - a series of automatic tax hikes and spending cuts worth $600 billion - austerity that could tips the US economy into a recession.
US business executives have cut spending and hiring on possible fallout from a failure to reach agreement. Tepid growth and high unemployment will likely cause the Federal Reserve to stick with its ultra-loose monetary policy. The Fed sold $7.828 billion in short-dated issues for Operation Twist after buying $16.8 billion in long-dated debt last week. In November, Treasuries earned a middling 0.52 percent return, lagging junk and municipal bonds, according to Barclays.