December 31, 2019 / 7:03 PM / a month ago

TREASURIES-Bonds on track to post best year since 2014

 (Adds Trump comments, updates prices)
    By Karen Brettell
    NEW YORK, Dec 31 (Reuters) - Longer-dated U.S. Treasuries
look set to post their best return since 2014 on Tuesday, after
concerns about the slowing U.S. economy prompted the Federal
Reserve to cut interest rates three times this year.
    Slowing growth that was worsened by the U.S.-China trade
war, tepid inflation and concerns that the U.S. central bank
went too far in raising rates last year prompted a radical shift
in 2019 that at one point sent benchmark yields to their lowest
levels since 2016.
    The closely watched yield curve between two-year and 10-year
notes also inverted in August, signaling a likely
recession in the next one to two years. It has since shifted to
its steepest since October 2018.
    Longer-dated debt gained this year on concerns that low
inflation and weak growth will persist or worsen. Demand for
yield, with many bonds in Europe and Japan trading in negative
territory, added to their outperformance.
    Thirty-year bonds returned 17.15% this year through Monday
, according to Bank of America Merrill Lynch. Final
data will not be updated until late on Tuesday.
    Benchmark 10-year notes have returned
9.03%through Monday.
    In 2014, 30-year bonds returned 29.43% and 10-year notes
returned 10.72%.
    Optimism this month that U.S. growth is improving, and an
increase in risk appetite after the United States and China
agreed to the first phase of a trade deal, however, has eaten
into the year's returns.
    Yields hit session highs on Tuesday after U.S. President
Donald Trump said the agreement will be signed on Jan. 15 at the
White House. 
    Thirty-year bonds are on track for a 2.83% loss
this month and 10-year notes are heading toward a
0.91% decrease.
    Overnight funding markets were stable on Tuesday, indicating
that the Fed has offset any potential year-end funding squeeze.

    
        December 31 Tuesday 1:48PM New York / 1848 GMT
    
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.525        1.5564    0.000
 Six-month bills               1.55         1.5883    -0.008
 Two-year note                 100-27/256   1.571     -0.002
 Three-year note               100-12/256   1.6086    0.014
 Five-year note                100-68/256   1.6943    0.013
 Seven-year note               99-112/256   1.8361    0.028
 10-year note                  98-120/256   1.921     0.026
 30-year bond                  99-176/256   2.3896    0.046
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        11.50         1.00    
 spread                                               
 U.S. 3-year dollar swap         7.00         0.25    
 spread                                               
 U.S. 5-year dollar swap         3.25         1.00    
 spread                                               
 U.S. 10-year dollar swap       -2.75         0.75    
 spread                                               
 U.S. 30-year dollar swap      -30.25        -0.25    
 spread                                               
 

 (Reporting by Karen Brettell;
Editing by Nick Zieminski and Richard Chang)
  
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