November 15, 2018 / 8:58 PM / a month ago

TREASURIES-Prices rise on Brexit worries; focus on U.S. stocks

    * Brexit concerns push investors to bonds
    * U.S. yields fall to two week lows
    * U.S. economic data comes out mixed; Fed tightening intact

 (Recasts, adds new comments; updates table, prices in text)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 15 (Reuters) - U.S. Treasury prices drifted
higher on Thursday, sending yields to two-week lows across the
curve, as Britain's draft agreement to exit the European Union
ran into trouble, prompting investors to seek the safety of
government bonds.
    Yields came off their lows in the afternoon after the
Financial Times reported that U.S. Trade Representative Robert
Lighthizer has told some industry executives another round of
tariffs on Chinese imports has been put on hold as the two
nations pursue talks.
    A USTR spokesperson, however, denied the FT
report.
    U.S. stocks, which had been in the red for most of the day,
rallied on the FT news, notwithstanding the denial, helping
Treasury yields limit their fall.
    "We're really just watching risk sentiment here," said
Gennadiy Goldberg, interest rates strategist, at TD Securities
in New York. 
    "The market was in a risk-off mode heading into the early
part of the day just because of Brexit. But we did get
potentially positive trade headlines and that helped stocks
recover," he added.
    Brexit and its many twists and turns remained a concern,
however.
    Days after drafting a divorce deal, Britain's exit from the
EU took a turn for the worse after Prime Minister Theresa May's
Brexit secretary and other ministers quit in protest as
euro-skeptic lawmakers stepped up efforts to oust her.

    "It is becoming painfully apparent how very uncertain the
future looks," said John Taylor, president of macro research
firm Taylor Global Vision in New York.
    "A change of government, or No Deal, or No Brexit are now
quite possible. The market has been mistakenly optimistic about
what is to come from Brexit," he added.
    The U.S. Treasuries' 10-year interest rate
premium over British government bonds rose to its
highest since mid-1984, with the spread widening to 174 basis
points, a level last seen in June 1984, according to data from
Refinitiv.
    Global factors overshadowed Thursday's U.S. economic data,
which were mixed. Those numbers though should keep the Federal
Reserve on track to raise interest rates multiple times starting
in December. 
    The data was led by U.S. retail sales, which rose 0.8
percent in October. Excluding automobiles, gasoline, building
materials and food services, retail sales increased 0.3 percent
last month, lower than expected. These so-called core retail
sales correspond most closely with the consumer spending
component of gross domestic product.
    In afternoon trading, benchmark 10-year Treasury note yields
fell to 3.11 percent, from 3.12 percent late on
Wednesday. 
    U.S. 30-year yields, however, edged up to 3.36 percent
, compared with Wednesday's 3.355 percent.
    On the short end of the curve, U.S. two-year yields slipped
to 2.858 percent, from 2.862 percent on Wednesday.
    
      November 15 Thursday 3:39PM New York / 2039 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.32         2.3659    -0.010
 Six-month bills               2.45         2.515     -0.005
 Two-year note                 100-8/256    2.858     -0.004
 Three-year note               99-234/256   2.9051    -0.014
 Five-year note                99-184/256   2.9362    -0.016
 Seven-year note               99-222/256   3.0212    -0.016
 10-year note                  100-32/256   3.1103    -0.010
 30-year bond                  100-72/256   3.36      0.005
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.50         0.50    
 spread                                               
 U.S. 3-year dollar swap        17.00         0.50    
 spread                                               
 U.S. 5-year dollar swap        14.25         0.25    
 spread                                               
 U.S. 10-year dollar swap        6.25         0.25    
 spread                                               
 U.S. 30-year dollar swap      -10.50         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss, Editing by Bernadette
Baum)
  
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