April 17, 2018 / 3:00 PM / in 6 months

TREASURIES-Two-year yields at decade high as data reflects solid Q1

    By Kate Duguid
    NEW YORK, April 17 (Reuters) - - Short-dated Treasury yields
continued to rise on Tuesday, driving the yield curve to its
flattest level in over a decade, as economic data from March
supported further interest rate hikes by the Federal Reserve in
2018. 
    U.S. homebuilding increased more than expected in March amid
a rebound in the construction of multi-family housing units,
despite weakness in the single-family segment. The data followed
a report Monday from the U.S. Commerce Department that showed
retail sales in March rose 0.6 percent, after three months of
declines.
    "We're closing out the quarter on more solid footing than we
had seen in January and February," said John Herrmann, director
of U.S. rates strategies at MUFG Securities in New York.
    "Even with the bad weather in March, the data has really
strengthened, supporting the view that the Fed will most likely
have to hike rates in June," said Herrmann. 
    The spread between two- and 10-year Treasury bond yields
 hit 43.20 basis points, its lowest level since
August 2007. The spread between five- and 30-year yields
 fell to 32.60 basis points, a low of more than a
decade. 
    The stability of short-term economic growth, however, may be
threatened by U.S. President Donald Trump's protectionist trade
policies. The United States and China have threatened each other
with tens of billions of dollars in tariffs in recent weeks,
fanning worries of a full blown trade war that threatens global
supply chains and investment plans.
    Threatening the story of American growth is "the persistent
risk from the Trump administration ... which periodically comes
up with policy suggestions that can run counter to U.S. growth
in the short- to intermediate-term," said Herrmann. 
    In addition to steady economic data, U.S. corporate earnings
being reported this week indicate strength in the equity market,
which is supportive of higher bond yields. Wall Street indexes
rose on Tuesday as strong earnings from Netflix,
Goldman Sachs and healthcare companies boosted optimism
over what is expected to be the strongest earnings season in
seven years.
    The benchmark 10-year government bond was last
at 2.834 slightly above its last close at 2.832. The two-year
yield was last up at 2.399, its highest level since
August 2008. 

    April 17 Tuesday 10:50AM New York / 1450 GMT
                               Price                  
 US T BONDS JUN8               145-21/32    0-6/32    
 10YR TNotes JUN8              120-104/256  -0-16/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.75         1.7823    0.028
 Six-month bills               1.9475       1.9942    0.002
 Two-year note                 99-184/256   2.3981    0.021
 Three-year note               99-138/256   2.5359    0.017
 Five-year note                99-30/256    2.6915    0.008
 Seven-year note               98-244/256   2.7916    0.008
 10-year note                  99-76/256    2.8322    0.000
 30-year bond                  99-164/256   3.0182    -0.012
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        29.25        -1.75    
 spread                                               
 U.S. 3-year dollar swap        23.25        -1.00    
 spread                                               
 U.S. 5-year dollar swap        12.50        -0.50    
 spread                                               
 U.S. 10-year dollar swap        3.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -12.75         0.50    
 spread                                               
 

 (Reporting by Kate Duguid
Editing by Nick Zieminski)
  
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