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TREASURIES-U.S. bond yields dip amid rate-hike doubts beyond June
May 25, 2017 / 7:14 PM / 3 months ago

TREASURIES-U.S. bond yields dip amid rate-hike doubts beyond June

    * Traders see rate hike in June but less likely after
    * U.S. yields stuck in tight range, 10-year near 2.25 pct
    * U.S. Treasury awards 7-yr note supply to average demand
    * Analysts mull number of rate hikes when Fed slows bond
buys

 (Updates market action, adds quotes)
    By Richard Leong
    NEW YORK, May 25 (Reuters) - U.S. Treasury yields fell
slightly on Thursday on doubts whether the Federal Reserve would
raise interest rates more than once by the end of 2017 as it
signaled it is preparing to shrink its $4.5 trillion balance
sheet later this year.
    Bond yields slipped into the lower end of this week's tight
trading range with the 10-year yield hovering around the 2.25
percent area.
    "We have a lot of commotion but not a lot of action. It's a
very pedestrian trading day," said Aaron Kohli, interest rates
strategist at BMO Capital Markets in New York.
    Analysts said volume was below average ahead of Friday's
shortened trading session. The U.S. bond market will close early
at 2 p.m. (1800 GMT) on Friday and will be shut on Monday for
the U.S. Memorial Day holiday.
    The benchmark 10-year Treasury yield was 2.254
percent, down 1 basis point from late on Wednesday. It has
bounced in a narrow 7 basis point range so far this week.
    Thursday's yield decline was spurred by bond buying in the
wake of the Federal Reserve's release of the minutes on its May
2-3 policy meeting on Wednesday. The minutes supported the view
that it has adopted a gradual approach toward paring its
reinvestments in Treasuries and mortgage-backed securities as it
expects to further raise short-term interest rates.
    The Fed's cautious stance stemmed partly from inflation data
in March and April that fell short of what traders had expected,
 raising worries whether price growth would reach the Fed's 2
percent goal.
    "The minutes were indicative of a June hike," said Thomas
Roth, head of Treasury trading at MUFG Securities America in New
York. "It sounds like they want to get this (balance sheet)
tapering started but would that mean one less rate hike for this
year."
    Fed policymakers' current forecasts on key short-term rates
signaled they expect two more rate increases by year-end.
    The futures market implied traders priced in an 83 percent
chance of a quarter point rate increase at the Fed's June 13-14
meeting, while they saw slightly less than a 50
percent shot of another hike by the end of 2017,
CME Group's FedWatch tool showed.
    Meanwhile, the U.S. Treasury Department completed this
week's $88 billion in coupon-bearing government supply with the
$28 billion sale of new seven-year note, which fetched decent
demand.
    Corporate bond issuance lightened up from its frantic pace
earlier this week, reducing their upward pressure on Treasury
yields.
 May 25 Thursday 3:00PM New York / 1900 GMT
                               Price                  
 US T BONDS JUN7               153-28/32    0-11/32   
 10YR TNotes JUN7              126-48/256   0-32/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.9175       0.9324    0.002
 Six-month bills               1.055        1.0754    0.005
 Two-year note                 99-232/256   1.2976    -0.008
 Three-year note               100-32/256   1.4568    -0.011
 Five-year note                99-208/256   1.7894    -0.013
 Seven-year note               99-164/256   2.0558    -0.014
 10-year note                  101-20/256   2.2536    -0.012
 30-year bond                  101-140/256  2.9221    -0.013
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        23.75         0.75    
 spread                                               
 U.S. 3-year dollar swap        21.25         1.50    
 spread                                               
 U.S. 5-year dollar swap         8.50         1.00    
 spread                                               
 U.S. 10-year dollar swap       -5.50         0.50    
 spread                                               
 U.S. 30-year dollar swap      -44.50         0.25    
 spread                                               
 
    

    
 (Editing by Meredith Mazzilli and Bernadette Baum)
  
 

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