October 19, 2018 / 7:48 PM / 24 days ago

TREASURIES OUTLOOK-U.S. yields rise as hopes for Italy pare safety bids

    * Wall Street bounce fades despite upbeat earnings
    * Italian yields fall on EU Moscovici's remarks
    * U.S. to sell $108 bln in fixed-rate debt next week
    * Fed's Kaplan sees 2-3 more rate hikes to "neutral"

 (Repeats to additional subscribers)
    By Richard Leong
    NEW YORK, Oct 19 (Reuters) - U.S. Treasury yields rose on
Friday, with the 10-year yield hovering near a one-week high as
traders pared safe-haven bond positions stemming from hopes for
reduced tension between Italy and the European Commission over
the country's debt-laden budget.
    Major U.S. stock indexes also lifted bond yields higher on 
strong corporate earnings. They offset worries about rising
borrowing costs, U.S.-China trade tensions and strained
relations between United States and Saudi Arabia.
    Yields on Italian government debt
fell after European Economic Affairs Commissioner Pierre
Moscovici said he wanted to reduce tensions with Italy over the
country's contentious budget plans. Earlier on Friday, the
10-year Italian yield retreated to 3.57 percent from a 4-1/2
year peak at 3.78 percent. The drop in Italian yields helped
raise yields on U.S. and German debt.
    "That gave the market some relief," Larry Milstein, head of
government and agency trading at R.W. Pressprich & Co. in New
York said of the latest development between EC and Italy. "That
took some of the safe-haven bids out of the market."
    Benchmark 10-year Treasury yield yield was 3.200
percent, up over 2 basis point from Thursday when it reached a
one-week peak of 3.179 percent. Last week, it reached a 7-1/2
year peak of 3.261 percent.
    The Dow gained 0.20 percent and the S&P 500
rose 0.20 percent.
    On Thursday, Wall Street share prices tumbled partly on
disappointing results from industrial companies. 
    The Treasury market was roiled this week after the Federal
Reserve released minutes on its Sept. 25-26 policy meeting.
 
    Central bankers raised borrowing costs a quarter point, and
analysts said some traders dumped interest rate futures after
the minutes suggested some policy makers were open to raising
short-term interest rates above the "neutral" level of 3
percent.
    On Friday, Dallas Fed President Robert Kaplan said the U.S.
economy is "basically" meeting the Fed's mandate on employment
and inflation. 
    He said at an event sponsored by the Manhattan Institute
another two to three more rate increases would bring borrowing
costs into "neutral" territory where it's neither stimulating
nor restricting U.S. economic growth.
    Technical indicators suggest Treasuries are oversold, but 
the market faces supply pressure next week due to a planned
auction of a combined $108 billion in two-year, five-year and
seven-year fixed-rate U.S. government debt.
    "These yield levels are probably not going to hold given the
sheer amount of supply next week," Milstein said.
    Earlier Friday, the National Association of Realtors said
U.S. home resales fell in September for a sixth straight months.

October 19 Friday 3:32PM EDT/ 1932 GMT
                               Price                   
 US T BONDS DEC8               137-24/32    -0-12/32   
 10YR TNotes DEC8              117-248/256  -0-44/256  
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             2.265        2.3091     -0.001
 Six-month bills               2.41         2.4729     0.007
 Two-year note                 99-178/256   2.9122     0.038
 Three-year note               99-174/256   2.988      0.031
 Five-year note                99-48/256    3.0532     0.029
 Seven-year note               99-36/256    3.1386     0.026
 10-year note                  97-72/256    3.1996     0.025
 30-year bond                  92-212/256   3.3837     0.026
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        20.25        -2.25     
 spread                                                
 U.S. 3-year dollar swap        18.50        -1.50     
 spread                                                
 U.S. 5-year dollar swap        14.25        -0.75     
 spread                                                
 U.S. 10-year dollar swap        6.50        -0.25     
 spread                                                
 U.S. 30-year dollar swap       -8.50         0.00     
 spread                                                
 

    
 (Reporting by Richard Leong; Editing by David Gregorio and
Grant McCool)
  
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