(Recasts with yields rising)
* Trump allegations raise doubts about tax cuts, new
* Brazilian stock plunge boosts safety buying of U.S. bonds
* U.S. two-, 10-year yield curve flattest since October
By Karen Brettell
NEW YORK, May 18 U.S. Treasury yields rose from
one-month lows on Thursday as stocks recovered from Wednesday’s
dramatic drop, reducing demand for safe-haven bonds.
Uncertainty arising from allegations against U.S. President
Donald Trump, however, was seen as keeping investors on edge.
"Yields are up because stocks are rising. They are taking
their cue from that," said Lou Brien, a market strategist at DRW
Trading in Chicago, adding that “markets are trading very
Yields on benchmark 10-year notes fell to 2.18 percent
overnight, the lowest since April 19, after Reuters reported
that Michael Flynn and other advisers to Trump’s campaign were
in contact with Russian officials and others with Kremlin ties
in at least 18 calls and emails during the last seven months of
the 2016 presidential race.
That came after the U.S. Justice Department on Wednesday
named former Federal Bureau of Investigation chief Robert
Mueller as special counsel to investigate whether Russia
interfered in the election and possible collusion between the
Trump campaign and Moscow.
“The risk going forward is that this thing goes on and on
and we don’t have a resolution, which means the new
administration is not able to work on its tax initiatives and
regulatory reform,” said Subadra Rajappa, head of U.S. rates
strategy at Societe Generale in New York.
A plunge in the Brazilian stock market on concerns about
political instability also added to safety buying of U.S. bonds.
The 10-year notes were last down 5/32 in price
to yield 2.23 percent, up from 2.22 percent late on Wednesday.
The yield curve between two-year notes and 10-year notes
flattened to 95 basis points, its lowest since
Oct. 27 as investors reached for longer-duration bonds.
Longer-dated notes are viewed as having more potential
upside than two-year bonds, which are highly sensitive to
interest rate changes. The Federal Reserve is expected to hike
rates next month.
“The two-year is going to be pegged to Fed expectations, so
if there’s a flight to quality you’re going to see that manifest
in the back end of the curve," Rajappa said.
The Treasury Department sold $11 billion in reopened 10-year
Treasury Inflation-Protected Securities (TIPS) to strong demand
on Thursday, with indirect bidders including fund managers and
foreign central banks purchasing 80.3 percent of the sale.
(Editing by Lisa Shumaker)