April 24, 2018 / 7:44 PM / a month ago

TREASURIES-U.S. 10-year yield tops 3 pct as economy shows resilience

    * Rising yields seen posing trouble for stocks, risky assets
    * U.S. consumer confidence bounces, new home sales gain
    * U.S. 2-year yield rise to 2.5 pct, highest since Sept.
2008
    * U.S. sells $32 bln 2-year fixed-rate note to mediocre
demand

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, April 24 (Reuters) - U.S. benchmark 10-year
Treasury yield rose to 3 percent for the first time in more than
four years on Tuesday, reflecting the durability of the U.S.
economic expansion and stoking views the three-decade-old bull
market in bonds is coming to an end.
    The bond market sell-off since late last week stemmed from
inflation worries caused by rising commodity prices and growing
Treasury supply, as well as bets the Federal Reserve would
further raise key borrowing costs, analysts said.
    "That we're at a point that we can start to sustain some
rises in bond yields speaks to confidence in the economy. And
that's what is really critical at this point is to follow the
Fed's lead in terms of talking about policy normalization," said
Willie Delwiche, investment strategist at Baird in Milwaukee.
    Tuesday's data on U.S. consumer confidence and new home
sales, both stronger in April, bolstered the case the economy
will continue to grow in the coming quarters.
    Some analysts argued that rising bond yields, which mortgage
and other loan rates are based on, would increase borrowing
costs for consumers, undoing much of the expected benefits from
last year's U.S. tax overhaul. Banks and other companies also
have seen their short-term borrowing costs rise due to the Fed's
rate hikes. 
    The ten-year yield's brief breach above 3 percent added to
Wall Street's woes on Tuesday. The three major U.S. stock
indexes were down more than 1 percent in late trading.

    "We are heading in a direction that is uncomfortable for
other assets that have benefited from a low-rate environment,"
said George Goncalves, head of U.S. rates strategy at Nomura
Securities International in New York.
    The 10-year Treasury yield rose 2 basis points
to 2.994 percent after rising to 3.003 percent, which was the
highest since January 2014.
    The two-year yield touched 2.500 percent, which
was last seen in September 2008 before subsiding to 2.470
percent, down 0.4 basis point on the day.
    Analysts are not sure how much further the 10-year yield
will climb.
    If the 10-year yield were to rise to 3.25 or higher,
investors may shift more money into Treasuries from stocks and
other risky assets. If it were to stall at current levels,
investors will likely stick with their current allocations,
analysts said.
    On the supply front, the Treasury Department sold $32
billion in two-year notes in mediocre demand at a yield of 2.498
percent, the highest since July 2008.
    It will offer $35 billion of five-year securities
 on Wednesday along with $17 billion in two-year
floating-rate notes. It will auction $29 billion of seven-year
debt on Thursday.
    April 24 Tuesday 3:00PM / 1900
                               Price                   
 US T BONDS JUN8               142-16/32    -0-15/32   
 10YR TNotes JUN8              119-76/256   -0-8/256   
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             1.8325       1.8667     0.042
 Six-month bills               1.9925       2.0407     0.003
 Two-year note                 99-150/256   2.4704     -0.004
 Three-year note               99-74/256    2.625      -0.008
 Five-year note                98-142/256   2.8157     -0.003
 Seven-year note               98-8/256     2.9408     0.005
 10-year note                  98           2.9864     0.013
 30-year bond                  96-180/256   3.1717     0.029
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        27.00        -0.25     
 spread                                                
 U.S. 3-year dollar swap        21.25         0.00     
 spread                                                
 U.S. 5-year dollar swap        10.50         0.25     
 spread                                                
 U.S. 10-year dollar swap        2.25        -0.25     
 spread                                                
 U.S. 30-year dollar swap      -13.50        -0.50     
 spread                                                
 

    
 (Additional reporting by Lewis Krauskopf; Editing by Dan
Grebler, Richard Chang and Susan Thomas)
  
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