August 8, 2019 / 8:05 PM / 4 months ago

TREASURIES OUTLOOK-U.S. bond yields rise as Wall Street rebounds

    * Latest 30-year bond sold at lowest yield in three years
    * U.S. jobless claims unexpectedly fell last week
    * Germany may consider new debt for climate plan -official
    * Italy's deputy prime minister Salvini wants new elections

 (Repeats to additional subscribers)
    By Richard Leong
    NEW YORK, Aug 8 (Reuters) - U.S. Treasury yields rose on
Thursday, with 30-year yields climbing from a near-record low,
as traders scaled back safe-haven holdings of U.S. government
debt as Wall Street continued to rebound from a recent rout.
    Fears about a global downturn, exacerbated by the trade
tensions between China and the United States, had sparked a
sharp sell-off in stock markets and stoked a rush into
Treasuries, yen, gold and other perceived safe assets.
    Even so, the safe-haven appeal of Treasuries for investors
has not gone away as fears of a downturn continue to overhang
the market and threaten the possibility of another stock market
sell-off.
    "The only hedge to equity underperformance are bonds," said
Priya Misra, head of global rates strategy at TD Securities.
"People are looking at any backup in yields as a buying
opportunity." 
    The rise in bond yields started overnight in overseas bond
markets. German yields moved up from record lows in
response to better-than-expected Chinese trade data and a
steadying of China's yuans currency.
    Global yields also got a lift after Reuters reported that
Germany is considering whether to issue new debt to fund a
climate protection program, according to a senior government
official.
    A surprise drop in U.S. jobless claims last week also
allayed fears of a recession.
    Bond yields retreated from their session highs even after a
mediocre $19 billion 30-year bond auction. 
    Some safe-haven demand for Treasuries returned in late U.S.
trading after Italian deputy prime minister Matteo Salvini said
the country's governing coalition had broken down and the only
way forward was to hold new elections.   
    In late U.S. trading, the yield on the 30-year, or long,
bond was up 3.5 basis points at 2.230%, while on
Wall Street the S&P 500 was up 1.9%.
    On Wednesday, the 30-year yield fell to 2.123%, within
striking distance of an all-time low of 2.089% set in July 2016,
according to Refinitiv data.
    Benchmark 10-year Treasury yields were 2.6 basis
points higher at 1.717% after hitting 1.595% on Wednesday, which
was their lowest level since October 2016.
    Longer-dated U.S. yields faced additional upward pressure
from this week's debt supply for the government's $84 billion
quarterly refunding.
    Investor demand for $19 billion in the latest 30-year bond
on Thursday and $27 billion in 10-year Treasuries on Wednesday
turned out softer than expected.
    On the short-end of the yield curve, the margin of
three-month T-bill rates over 10-year note yields
shrank to 29 basis points after touching 40 basis points a day
earlier, which was the highest level in 12-1/2 years.
    An inversion between these two maturities has preceded a
recession in the past 50 years.
    
   Thursday, Aug. 8, at 1541 EDT (1941 GMT):
                               Price                  
 US T BONDS SEP9               161-13/32    -26/32    
 10YR TNotes SEP9              129-224/256  -9/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9775       2.0149    -0.006
 Six-month bills               1.9125       1.9633    0.020
 Two-year note                 100-63/256   1.6228    0.052
 Three-year note               99-218/256   1.5508    0.046
 Five-year note                100-250/256  1.5453    0.043
 Seven-year note               101-168/256  1.6229    0.038
 10-year note                  99-24/256    1.724     0.033
 30-year bond                  113-188/256  2.2402    0.045
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       9.90         -2.55     
 30-year vs 5-year yield       69.40        -0.65     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -3.25        -1.00    
 spread                                               
 U.S. 3-year dollar swap        -5.25         0.00    
 spread                                               
 U.S. 5-year dollar swap        -8.00         0.25    
 spread                                               
 U.S. 10-year dollar swap      -13.25        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -43.00        -1.25    
 spread                                               
 
    

 (Reporting by Richard Leong; Editing by Susan Thomas and Leslie
Adler)
  
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