September 28, 2018 / 3:08 PM / in 22 days

REFILE-TREASURIES-U.S. Treasuries on track for worst month since January

 (Changes to "since" from "in" in first paragraph)
    * Rising supply, yields hurt $15 tln sector in September
    * Italy's budget woes spur safe-haven bids for U.S. bonds
    * Traders shrug off mixed economic data 

    By Richard Leong
    NEW YORK, Sept 28 (Reuters) - U.S. Treasury yields fell on
Friday as the bond sector was on track for its worst month since
January as a result of rising government debt supply and sturdy
economic data that have enabled the Federal Reserve to keep
raising interest rates.
    Bond yields dipped on the day as investors bought
longer-dated debt to rebalance their portfolios before the end
of the month. 
    Worries about Italy's fiscal woes spurred safe-haven demand
for German Bunds and U.S. Treasuries, analysts said. 
    "You have some month-end and quarter-end buying. You also
have some concerns about Italy," said Gennadiy Goldberg,
interest rate strategist at TD Securities in New York.
    Italy's new government proposed a 2019 budget with a deficit
three times bigger than the previous administration's target,
setting up a clash with the European Commission. 
    This touched off a sell-off in Italian sovereign debt,
sending local 10-year yield over a quarter point
higher to 3.719 percent.
    At 10:30 a.m. (1430 GMT), benchmark 10-year Treasury yields 
 were 1 basis point lower at 3.046 percent. On
Tuesday, they reached 3.113 percent, the highest since May,
Reuters data showed.
    Their German counterpart was down 6 basis points
at 0.469 percent.
    Bond traders brushed off Friday's economic data which came
in mixed. The latest figures signaled solid consumer spending
and sentiment, but a moderation in inflation.
    On Wednesday, the Federal Reserve signaled it remained on
its gradual rate-hike path given the economic expansion
supported by the massive tax cut enacted last December.

    Interest rates futures implied traders priced in nearly an
80 percent chance the U.S. central bank would raise key
overnight borrowing costs by a quarter point at its Dec. 18-19
meeting, CME Group's FedWatch program showed.
    Growing Treasuries supply in a bid to fund a widening fiscal
deficit likely reduced the appeal of buying this week's
government debt issues. The Treasury Department sold a combined
$107 billion in two-year, five-year and seven-year notes to soft
investor demand.
    Rising supply and yields have hurt the $15.3 trillion
government debt sector this month. That has produced a loss of
nearly 0.95 percent, which would mark the steepest monthly
decline since January, according to an index compiled by
Bloomberg and Barclays. 
September 28 Friday 10:54AM New York / 1454 GMT
                               Price                  
 US T BONDS DEC8               140-23/32    2/32      
 10YR TNotes DEC8              118-216/256  3/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.16         2.2015    0.010
 Six-month bills               2.31         2.3691    -0.001
 Two-year note                 99-222/256   2.8188    -0.016
 Three-year note               99-162/256   2.8802    -0.017
 Five-year note                99-174/256   2.9444    -0.016
 Seven-year note               99-244/256   3.0075    -0.016
 10-year note                  98-140/256   3.0463    -0.009
 30-year bond                  96-124/256   3.1831    0.001
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       22.50        0.40      
 30-year vs 5-year yield       23.80        1.25      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.25        -0.25    
 spread                                               
 U.S. 3-year dollar swap        15.75        -0.75    
 spread                                               
 U.S. 5-year dollar swap        11.25         0.00    
 spread                                               
 U.S. 10-year dollar swap        5.50        -0.25    
 spread                                               
 U.S. 30-year dollar swap       -7.00        -0.50    
 spread                                               
 
    

 (Reporting by Richard Leong; Editing by Nick Zieminski)
  
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