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TREASURIES-U.S. 10-year yields jump to more than 2-year high on oil, Fed
December 12, 2016 / 8:29 PM / 9 months ago

TREASURIES-U.S. 10-year yields jump to more than 2-year high on oil, Fed

* Benchmark yields hit highest level since Sept 2014

* Oil futures rise, boosting inflation outlook

* U.S. Treasury auctions show tepid results (Adds new comment, results of bond auctions, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 12 (Reuters) - U.S. Treasury yields rose on Monday, with benchmark 10-year notes climbing to more than two-year peaks, after oil prices increased and as investors braced for a widely expected interest rate increase from the Federal Reserve this week.

Yields, however, came off their highs in late trading as U.S. stocks lose steam.

Gennadiy Goldberg, interest rates strategist at TD Securities in New York, said investors were unsure whether they should buy U.S. 10-year Treasuries with prices at these low levels ahead of the Fed decision on Wednesday.

“We went to a key level earlier on at 2.50 percent in the 10-year, and while 2.50 seems attractive, we think it can back up some more,” he added.

U.S. 30-year bond yields also advanced on Monday, hitting 17-month highs, while those on two-year and three-year notes hit two-week peaks.

A rebound in crude prices reinforced the notion that U.S. inflation is on the rise with expectations of fiscal stimulus from the Trump administration. Higher inflation tends to depress bond prices, with longer-dated bonds typically more sensitive to inflation expectations.

Yields also edged higher after underwhelming auctions for U.S. three-year and 10-year notes.

The U.S. 10-year note fetched a high yield of 2.485 percent compared with 2.479 percent expected at the bid deadline, suggesting weak demand. Bids totaled $47.7 bln for a 2.39 cover, a little better than the 2.22 last month, but below the 2.54 average.

“We had expected a stronger result as outright levels are fairly good and the 10-year had decent concession on the curve,” said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York, referring to the fact that U.S. 10-year notes have cheapened considerably given the post-U.S. election sell-off.

“The small tail is an admitted disappointment against the broader backdrop of a healthy concession and likely means that a further backup is needed in 30-year yields in order to get the long-bond auction done,” he added.

The U.S. government will auction $12 billion in 30-year bonds on Tuesday.

The Treasuries supply comes before a widely expected quarter-point rate increase from the Fed at its two-day policy meeting on Tuesday and Wednesday.

In late trading, U.S. 10-year notes were down 4/32, while the yield rose to 2.478 percent from 2.464 percent late on Friday. Earlier, the yield touched 2.528 percent, its highest since Sept. 29, 2014.

U.S. 30-year bonds were down 4/32 with a yield of 3.160 percent, after rising to 3.215 percent, the highest since July 2015.

U.S. three-year notes were flat at 1.407 percent after earlier hitting a two-week high of 1.457 percent. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Richard Leong; Editing by Chizu Nomiyama and Lisa Von Ahn)

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