TREASURIES-U.S. bond prices rise as higher yields act as lure

By Ellen Freilich NEW YORK, Dec 19 (Reuters) - U.S. Treasuries rose onWednesday as investors looking to invest cash before year endwere drawn by yields that neared two-month highs. No sign of progress in Washington to reach a budget deal toavert $600 billion of tax increases and spending cuts before theend of the year also encouraged the bid for safe-haven U.S.government debt. The Federal Reserve's purchase of $1.889 billion in couponsmaturing from 2036 to 2042 supported the long end of the maturity curve. But the main dynamic was that "the longer end of theTreasury market got a little cheap, and people just startedcoming in and buying them," said Wilmer Stith, portfolio managerat the Wilmington Broad Market Fund in Baltimore. "They'retrying to make sure any cash they have before year-end is put towork." Traders cited talk that a big bond portfolio on the WestCoast was among the buyers. Benchmark 10-year Treasury notes rose 11/32 inprice, their yields easing to 1.78 percent from 1.82 percentlate on Tuesday. The sentiment over the budget talks in Washington to avertthe so-called fiscal cliff of tax hikes and spending cutsshifted to one of concern from one of optimism earlier in theweek. The White House on Wednesday said President Barack Obamawould veto a House of Representatives Republican proposalbecause it does not do enough to balance spending cuts and taxincreases. House Speaker John Boehner said the Republican planwould extend low tax rates, except on income of $1 million andabove. One trader said optimism about House Republicans comingtogether with Obama to avoid the fiscal cliff was "deterioratinga little bit, and that's helped bond prices." But markets have not given up on the notion of resolutionthis year or early next, said Stephen Wood, chief marketstrategist with Russell Investments in New York. "Is there a grand compromise? No. But Obama is moving.Boehner is moving. Financial markets will be choppy," he said. From an economic standpoint, the United States is "certainlydoing better than other parts of the world" and thus continuesto enjoy a safe-haven premium, Wood said. Strategists said 10-year Treasury notes found support at the1.80 percent yield level, which attracted buying. Supply of U.S. debt also kept a lid on gains. The Treasurywill sell $29 billion in seven-year notes later on Wednesday,followed by $14 billion in five-year Treasuryinflation-protected securities on Thursday. It sold $35 billionin five-year notes on Tuesday. Tuesday's sale drew solid demand, selling at a high yield of0.769 percent, around half a basis point higher than where thenotes traded before the auction.