September 11, 2019 / 8:00 PM / a month ago

TREASURIES-U.S. yields climb for 3rd day, in line with Europe, ahead of ECB meeting

    * ECB in focus; investors brace for less aggressive policy
    * China announces tariff exemptions on U.S. goods
    * Trump calls on Fed to adopt negative rate policy
    * U.S. yields little changed after mixed 10-year note
auction 

 (Adds analyst comment, updates prices, Trump comments on
negative rates, U.S. 10-year note auction results)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 11 (Reuters) - U.S. Treasury yields advanced
on Wednesday for a third straight day, moving in lock step with
the euro zone bond market, amid uncertainty about Thursday's
European Central Bank meeting, which could prove less aggressive
in easing monetary policy.
    U.S. benchmark 10-year and 2-year note yields climbed to
five-week peaks, while those on 30-year bonds advanced to
four-week highs. In the euro zone, most 10-year bond yields
stayed close to recent highs.
    Analysts said a report late Tuesday that the ECB may delay
quantitative easing and tie it to upcoming economic data may
have triggered the latest sell-off in European debt.

    "There was an expectation that the ECB would be aggressive
with easing," said Tom Simons, economist at Jefferies in New
York. "If they're not, that kind of changes the calculus a
little bit. There's nervousness on that front, so there's a lot
of paring back of positions."
    A Reuters poll showed nearly 70 economists were expecting
the ECB to cut its deposit rate at the meeting, predicting a 10
basis point reduction to -0.5%.
    Yields also found support from a further easing in
U.S.-China trade tensions  after China announced its first batch
of tariff exemptions for 16 types of U.S. products, days ahead
of a planned meeting between trade negotiators. 
    Trump described China's move as "good gesture".            
    "The sentiment that we're slipping into recession is quickly
slipping," said Stan Shipley, fixed income strategist, at
Evercore ISI in New York. He added that the Federal Reserve will
likely cut interest rates next month, but after that, "it gets
more squishy."
    Trump on Wednesday called on the Fed to lower interest rates
into negative territory, a move reluctantly used by some major
central banks to battle weak economic growth as it punishes
savers and banks' earnings in the process.
    Evercore's Shipley said this is not something an independent
Fed would do. "If Trump really thinks about it, zero or negative
interest rates would be consistent with a recession and that's
the last thing he wants."
    In afternoon trading, U.S. 10-year note yields
rose to 1.74% from 1.702% late on Tuesday. Early in the session,
10-year yields hit a five-week high of 1.752%.
    Yields on 30-year bonds were also higher at 2.217%
 from 2.181% on Tuesday, moving further away from
record lows of 1.905% touched in late August. U.S. 30-year
yields also hit a four-week peak of 2.233% earlier in the global
session.
    U.S. two-year yields rose as well to 1.676% from Tuesday's
1.664%, hitting a five-week high of 1.686%.
    Also on Wednesday, the Treasury sold $24 billion in
re-opened U.S. 10-year notes, but the auction posted mixed
results. The high yield of 1.739% was higher than the expected
yield at the bid deadline. But the bid-to-cover ratio was better
than average at 2.46.
    
      September 11 Wednesday 3:41PM New York / 1941 GMT
                               Price                  
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.92         1.9615    0.000
 Six-month bills               1.835        1.8831    -0.010
 Two-year note                 99-168/256   1.6783    0.014
 Three-year note               99-170/256   1.6153    0.023
 Five-year note                98-88/256    1.5981    0.033
 Seven-year note               98           1.6804    0.037
 10-year note                  98-240/256   1.742     0.040
 30-year bond                  100-176/256  2.2184    0.037
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -1.75         0.25    
 spread                                               
 U.S. 3-year dollar swap        -4.00         1.75    
 spread                                               
 U.S. 5-year dollar swap        -7.00        -0.25    
 spread                                               
 U.S. 10-year dollar swap      -12.00        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -42.25        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve
Orlofsky, Dan Grebler and Cynthia Osterman)
  
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