June 4, 2019 / 4:13 PM / 3 months ago

TREASURIES-U.S. bond yields jump as stocks rebound on rate-cut hopes

 (Updates market action, adds quote)
    * Powell says Fed to act "as appropriate" in face of risks
    * Futures imply traders still see multiple U.S. rate cuts 

    By Richard Leong
    NEW YORK, June 4 (Reuters) - U.S. Treasury yields rose on
Tuesday with longer-dated yields climbing from their lowest
since September 2017, as Wall Street stock prices recovered from
recent losses tied to growing trade conflicts between the United
States and its trade partners.
    Major U.S. stock indexes increased more than 1% in the wake
of comments from St. Louis Federal Reserve President James
Bullard who said on Monday an interest rate cut may be
"warranted soon" due to global trade risks and weak domestic
inflation.
    Fed Chairman Jerome Powell said on Tuesday the U.S. central
bank will respond "as appropriate" to risks posed by a global
trade war and other recent developments, supporting the view of
a possible rate decrease in the coming months.
    “Powell’s comments were a little more dovish than I had
expected. He understands inflation is below 2% and some inside
the Fed are concerned about that. There are also concerns about
trade," said Larry Milstein, head of government and agency
trading at R.W. Pressprich & Co. in New York.
    Trade tensions remained high on Tuesday with U.S. President
Donald Trump saying he would impose new tariffs on Mexico next
week despite the Mexican government's expected plan to stem
immigration at the U.S. southern border.
    At 11:37 a.m. (1537 GMT), benchmark 10-year Treasury yields
 rose 5.70 basis points to 2.138% after hitting
2.061%, their lowest since September 2017 on Monday. 
    Two-year yields declined 7.10 basis points to
1.912%. They touched 1.834% on Monday, their lowest since
December 2017.
    Shorter-dated yields have tumbled on a growing conviction
that the Fed would lower key rates more than once before
year-end to stave off a recession.   
    Interest rate futures traders are now pricing in a 54%
chance of a rate cut at the Fed’s July 30-31 meeting, down from
63% from late on Monday but up from 20% a week ago, according to
the CME Group’s FedWatch program.  
    They suggested traders expect as many as four rate cuts
between now and mid-2020.
June 4 Tuesday 12:01PM New York / 1601 GMT
                               Price                  
 US T BONDS SEP9               153-17/32    -34/32    
 10YR TNotes SEP9              126-196/256  -17/32    
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.3075       2.3599    0.019
 Six-month bills               2.25         2.3076    0.000
 Two-year note                 100-105/256  1.9135    0.073
 Three-year note               100-190/256  1.8645    0.067
 Five-year note                100-106/256  1.9125    0.066
 Seven-year note               100-156/256  2.031     0.065
 10-year note                  102-24/256   2.14      0.059
 30-year bond                  105-180/256  2.5997    0.052
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       22.40        -0.90     
 30-year vs 5-year yield       68.50        -1.10     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         3.75         0.00    
 spread                                               
 U.S. 3-year dollar swap         2.25         1.25    
 spread                                               
 U.S. 5-year dollar swap         0.50         1.00    
 spread                                               
 U.S. 10-year dollar swap       -3.25         1.25    
 spread                                               
 U.S. 30-year dollar swap      -27.50         0.50    
 spread                                               
 
    
 (Reporting by Sujata Rao and Virginia Furness in LONDON 
Editing by Chizu Nomiyama and James Dalgleish)
  
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