October 21, 2019 / 8:02 PM / 23 days ago

TREASURIES-U.S. 10-year, 30-year yields touch 5-week high on trade, Brexit optimism

    * Brexit once again in perilous state after deal vote
blocked
    * Trump says trade deal with China is coming along great
    * U.S. 30-year  bond yield hits five-week high

 (Adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 21 (Reuters) - U.S. Treasury yields rose on
Monday as investors sold safe-haven debt on optimism about a
potential U.S.-China trade deal and a resolution of some of the
major issues related to Britain's exit from the European Union.
    U.S. 10-year and 30-year yields rose to five-week highs,
with 30-year yields climbing for eight straight sessions. U.S.
two-year yields, on the other hand, advanced in six of the last
eight trading days.  
    Since early September, both 10-year and 30-year yields have
risen about 30 basis points.
    "The recent sell-off has been a direct correlation with the
better-than-expected news on Brexit as well as perception that
U.S. and China would come to some form of trade resolution very
soon," said Tom di Galoma, managing director at Seaport Global
Holdings in New York.
    However, he noted that even with an orderly Brexit and a
U.S.-China trade deal being achieved, "there are massive amounts
of troubling economic issues worldwide and a number of
geo-political events that could completely overwhelm the
marketplace."
    Investors overall pinned their hopes on an imminent
U.S.-China trade deal. 
    White House economic adviser Larry Kudlow further fanned
those hopes on Monday, saying in an interview on Fox Business
Network that tariffs scheduled for December could be withdrawn
if negotiations continue to go well.
    President Donald Trump on Monday said issues in phase two of
the deal would be, in many ways, a lot easier to work out than
those in phase one.
    Just when it looked like a Brexit deal is on its way with a
vote on Monday, House of Commons speaker John Bercow refused to
allow that vote as the same issue had been discussed on
Saturday.
    In afternoon trading, U.S. 10-year note yields
rose to 1.794% from 1.75% late on Friday.
    Yields on 30-year bonds were up at 2.286%, from
2.248% on Wednesday, after earlier hitting a five-week peak just
shy of 2.3%.
    On the short-end of the curve, U.S. two-year yields climbed
to 1.616%, from Friday's 1.576%.
    Stan Shipley, fixed income strategist at Evercore ISI in New
York, said U.S. recession fears have eased although it's still a
risk with economic growth slowing.
    "You go back two months ago, people were worried about a
recession," Shipley said. "The odds of a recession then were
between 35%-45%. Now people would put those odds at 20-25%."
    Treasury supply is also a big factor this week, with
auctions of $113 billion in coupons with two-, five-, and
seven-year maturities, along with about $200 billion in bills
and a two-year floating rate note.
    
      October 21 Monday 3:41PM New York / 1941 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.6375       1.6713    0.000
 Six-month bills               1.6025       1.6421    0.018
 Two-year note                 99-199/256   1.6169    0.041
 Three-year note               99-90/256    1.5986    0.044
 Five-year note                99-128/256   1.6056    0.047
 Seven-year note               99-132/256   1.6992    0.049
 10-year note                  98-120/256   1.7958    0.046
 30-year bond                  99-48/256    2.2877    0.040
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         2.50        -1.25    
 spread                                               
 U.S. 3-year dollar swap         0.50        -0.50    
 spread                                               
 U.S. 5-year dollar swap        -1.00        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -6.75         0.00    
 spread                                               
 U.S. 30-year dollar swap      -36.75         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-DreyfussEditing by Nick Zieminski
and Cynthia Osterman)
  
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