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TREASURIES-U.S. bond prices rally as U.S. GDP data disappoint
July 29, 2016 / 8:06 PM / a year ago

TREASURIES-U.S. bond prices rally as U.S. GDP data disappoint

* Traders pare Fed rate-hike view on meager U.S. growth
    * U.S. 10-year yields fall to lowest in over two weeks
    * U.S. yields jumped after BOJ move falls short of
expectations
    * Treasuries on track for slim return in July -Barclays

 (Updates market action, add quotes)
    By Richard Leong
    NEW YORK, July 29 (Reuters) - U.S. Treasury prices jumped on
Friday, with benchmark yields touching two-week lows, as
disappointing U.S. economic growth data caused traders to scale
back expectations for an interest rate hike by the Federal
Reserve in the next few months.
    Gross domestic product (GDP), the government's broadest
economic gauge, grew at a 1.2 percent annual rate in the second
quarter after rising by a downwardly revised 0.8 percent pace in
the first quarter, the Commerce Department said on Friday.
Economists polled by Reuters had forecast 2.6 percent growth in
the last quarter. 
    "It's surely not that impressive so what's the hurry to
raise rates?" Jack Flaherty, co-portfolio manager of the GAM
Unconstrained Bond Strategy in New York, said of the latest GDP
data.
    Benchmark 10-year Treasury notes were up 17/32
in price for a yield of 1.451 percent, the lowest since July 12.
    The two-year Treasury yield, which is sensitive
to traders' views on Fed policy, was down 5.5 basis points at
0.663 percent, its lowest in over a week.
    The yield decline accelerated in late trading after the
dollar briefly fell below 102 yen, spurring more buying
of long-dated Treasuries for the hedging of currency-linked
securities, analysts said.
    With the drop in yields this week, U.S. government bonds
likely produced a return of about 0.1 percent in July following
a 2.21 percent gain in June, Barclays data showed.
    Interest rate futures implied traders saw a 33 percent
chance the Fed would raise rates by year-end, down from 43
percent on Thursday, CME Group's FedWatch program showed. 
    The bond market rebounded from overnight losses and the
dollar sagged against the yen, after the Bank of Japan's
expansion of its bond purchase or quantitative easing (QE)
program fell short of expectations. Investors had hoped for an
aggressive move that would increase the BOJ's purchase of
Japanese government bonds. 
    While the latest headline GDP figures missed expectations
due largely to a plunge in inventories, some analysts cited
strength in consumer spending and modest price growth.
    Another quarter of sub-par U.S. growth may keep the Federal
Reserve from raising rates in September, analysts said.
    However, San Francisco Fed President John Williams said at
an event that data in coming months could support up to two rate
increases this year. 
    Dallas Fed President Robert Kaplan at another event
downplayed the surprisingly weak GDP data. 
  July 29 Friday 3:31PM New York / 1931 GMT
                               Price                  
 US T BONDS SEP6               174-16/32    1-5/32    
 10YR TNotes SEP6              133-24/256   0-136/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.265        0.2689    0.031
 Six-month bills               0.37         0.3758    -0.002
 Two-year note                 100-44/256   0.6632    -0.055
 Three-year note               99-254/256   0.7527    -0.064
 Five-year note                100-122/256  1.0269    -0.067
 Seven-year note               99-188/256   1.2898    -0.065
 10-year note                  101-140/256  1.4548    -0.056
 30-year bond                  106-236/256  2.1827    -0.046
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        22.25         0.75    
 spread                                               
 U.S. 3-year dollar swap        18.50         0.75    
 spread                                               
 U.S. 5-year dollar swap         2.50         0.50    
 spread                                               
 U.S. 10-year dollar swap      -10.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -44.75         0.00    
 spread                                               
 
    
 (Reporting by Richard Leong; Editing by Jeffrey Hodgson and
Richard Chang)

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