May 11, 2017 / 3:06 PM / in 2 months

TREASURIES-U.S. bond yields dip as stock drop outweighs PPI jump

5 Min Read

    * U.S. to sell $15 bln in 30-year bonds at 1 p.m. (1700 GMT)
    * U.S. yields touch highest levels since at least late March
    * U.S. producer prices post biggest annual gain in 5 years

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, May 11 (Reuters) - U.S. Treasury yields slipped on
Thursday after touching their highest levels since March as
losses in Wall Street stocks revived safe-haven bids for
government debt ahead of a $15 billion auction of 30-year bonds.
    The drop in U.S. share prices reversed an earlier rise in 
Treasury yields stemming from news of a robust April rise in the
producer price index. That report stoked the view that inflation
is nearing the Federal Reserve's 2-percent goal and a possible
interest rate increase in June.
    "The weakness in equities is keeping Treasury yields under
wraps," said Gennadiy Goldberg, interest rates strategist at TD
Securities in New York.
    With the PPI posting its biggest annual increase in five
years, the heavy supply of government and corporate bonds has
underpinned the rise in Treasury yields this week, analysts
said.
    The Treasury Department will complete the $62 billion May
quarterly refunding with the sale of a new 30-year bond issue at
1 p.m. (1700 GMT).
    Companies have sold $28.0 billion in U.S. investment-grade
bonds so far this week, according to IFR, a Thomson Reuters
unit.
    In early Thursday trading, the benchmark 10-year Treasury
note yield was down 1 basis point at 2.398 percent,
retreating from about a six-week peak reached in reaction to the
April PPI report.
    The two-year Treasury yield, which is sensitive
to traders' view on Fed policy, climbed to 1.359 percent, a near
eight-week peak, before subsiding to 1.347 percent.
    On Wall Street, the three major U.S. stock indexes
 fell, led by weakness in retail shares.

    The 2.5 percent annual jump in the PPI last month was the
latest evidence domestic inflation is accelerating with a
tightening domestic labor market and global economic backdrop.
This strengthened market expectations the U.S. central bank
would hike rates by quarter point to 1.00-1.25 percent at its
June 13-14 policy meeting, analysts said.
    Interest rate futures implied traders saw an 88 percent
chance of a rate increase next month compared with
83 percent on Wednesday, CME Group's FedWatch tool showed.
    "The PPI report is playing right in the hands of the Fed
raising rates in June," said Tom di Galoma, managing director at
Seaport Global in New York.
    In "when-issued" activity, traders expected the upcoming
30-year Treasury bond issue to sell at a yield
of 3.040 percent, compared with 2.938 percent at the prior
30-year auction in April, according to Tradeweb.
May 11 Thursday 10:52AM New York / 1452 GMT
                               Price                  
 US T BONDS JUN7               150-22/32    0-5/32    
 10YR TNotes JUN7              124-244/256  0-36/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.875        0.8891    -0.010
 Six-month bills               1.0175       1.0369    0.000
 Two-year note                 99-210/256   1.3428    -0.012
 Three-year note               99-218/256   1.5508    -0.016
 Five-year note                99-196/256   1.9246    -0.013
 Seven-year note               98-172/256   2.2066    -0.017
 10-year note                  99-204/256   2.398     -0.012
 30-year bond                  99-72/256    3.0367    -0.005
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        25.25         0.75    
 spread                                               
 U.S. 3-year dollar swap        20.50         1.00    
 spread                                               
 U.S. 5-year dollar swap         6.00         0.50    
 spread                                               
 U.S. 10-year dollar swap       -8.25         1.00    
 spread                                               
 U.S. 30-year dollar swap      -46.25         0.50    
 spread                                               
 
    
 (Reporting by Richard Leong; Editing by James Dalgleish)
  
 

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