Treasuries Pare Gains as House Votes to Suspend Ceiling

Treasuries rose as the House of Representatives voted to temporarily suspend the nation’s borrowing limit, leaving for a later date decisions on automatic spending cuts and government funding.

Benchmark 10-year note yields briefly pared losses as the measure, which lifts the government’s $16.4 trillion borrowing limit until May 19, passed 285-144. It goes to the Senate, where Majority Leader Harry Reid said lawmakers will pass the measure unchanged and send it to President Barack Obama. Treasuries rose earlier as the International Monetary Fund cut its 2013 global growth forecasts.

“What happens with the debt ceiling is the most important thing facing the Treasury market,” said Dan Mulholland, head of U.S. Treasury trading in the capital-markets unit of BNY Mellon Corp. in New York. “If an agreement on the debt ceiling and the budget is reached, we could move out of the 1.7-to-2 percent range.”

The benchmark 10-year note yield fell two basis points, or 0.02 percentage point, to 1.82 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices, after dropping as low as 1.81 percent. The 1.625 percent note due November 2022 gained 5/32, or $1.56 cents per $1,000 face amount, to 98 7/32.

The 30-year bond yield declined one basis point to 3.02 percent.

Debt Limit

With the revised strategy on the debt limit, Republicans plan to use two other approaching deadlines -- the March 1 start of automatic spending cuts and the need to pass a bill to fund the government by the end of March -- to extract spending reductions from Obama and congressional Democrats.

The measure passed today, H.R. 325, would allow the nation’s borrowing authority to automatically rise May 19 to accommodate the amount the U.S. Treasury borrowed during the three months that the limit is suspended.

“It puts off any interruption until May,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “It also doesn’t put our debt into focus internationally. It looks like it’s helping Treasuries.”

Global investors surveyed by Bloomberg said the state of America’s finances represents the greatest risk to the world economy.

With the government weeks away from reaching its borrowing limit, 36 percent of respondents to a quarterly Bloomberg poll said the nation’s fiscal woes was the biggest threat compared with 29 percent who choose Europe’s sovereign-debt crisis and 15 percent who name a slowing Chinese economy.

Bullish Reversal

U.S. 10-year yields will increase to 2.27 percent by year- end, according to the average forecast in a Bloomberg survey of financial companies with the most recent projections given the heaviest weightings.

Treasuries handed investors a 0.3 percent loss this month through yesterday, while bonds in an index of sovereign debt around the world declined 0.2 percent, according to Bank of America Merrill Lynch data.

Investors in Treasuries cut bullish bets this week to the lowest since Aug. 15, 2011, according to JPMorgan Chase & Co.

The proportion of net shorts was at 12 percentage points in the week ending yesterday, according to the JPMorgan survey, reversing from a net-long position of six percentage points in the week ending Jan. 14.

Outright longs dropped to 7 percent, from 21 percent the previous week, the survey said, while the percent of outright shorts, or bets the securities will fall in value, rose to 19 percent from 15 percent.

Investors raised neutral bets to 74 percent from 64 percent, the survey reported.

IMF Forecast

The IMF reduced its global growth forecast to 3.5 percent from 3.6 percent. It forecast a 0.2 percent contraction for the euro region as progress in battling Europe’s debt crisis fails to produce an economic recovery.

The Federal Housing Finance Agency house-price index gained 0.6 percent in November from the previous month. It was forecast to rise by 0.7 percent, according to the median estimate of economists surveyed by Bloomberg News.

The Fed purchased $1.474 billion of Treasuries due from February 2036 to November 2042 today as part of the $85 billion of government and mortgage debt it is buying each month to spur the economy by putting downward pressure on bond yields.

Inflation expectations dropped from the highest in almost three months as the U.S. prepares to sell $15 billion in 10-year inflation-indexed debt tomorrow. The last six sales of Treasury Inflation Protected Securities since January 2012 have drawn negative yields.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net