September 9, 2019 / 7:41 PM / 8 days ago

TREASURIES-U.S. yields gain, in line with Europe, as risk sentiment improves

 (Recasts, adds new analyst comment, updates prices)
    * U.S. yields climb to three-week peaks
    * Germany says considering new agencies to take on new debt
    * Markets expect less aggressive ECB
    * ECB cut still likely, but measure in place to limit impact
    * TD still sees lower rates; 10-year seen down at 1.25% by
yearend

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 9 (Reuters) - U.S. Treasury yields rose to
three-week highs on Monday, in line with gains in the European
bond market, as risk appetite improved amid easing U.S.-China
trade tensions and expectations of less-aggressive action from
the European Central Bank this week.
    Yields on U.S. debt, from two-year notes to 30-year bonds,
all hit peaks after rising in two of the last three sessions, as
investors grew less nervous about the U.S.-China trade war.
Washington and Beijing have agreed to go back to the negotiating
table. 
    Treasuries are also moving in sympathy with the European
bond market, which was undermined by a Reuters report that
Germany is considering setting up independent public agencies
that could take on new debt to invest in the country's flagging
economy without falling foul of strict national spending rules.

    "To a large extent a lot of the safe-haven buying is coming
off," said Kim Rupert, managing director of global fixed income
at Action Economics in San Francisco. 
    "We also saw European bond yields close sharply higher. I
think part of that is that easing expectations from the ECB have
been scaled back."
    The European Central Bank meets on Thursday. Money markets
show investors expect a 10 basis-point cut in the deposit rate
to -0.50% in the first cut since 2016. 
    Action Economics in its blog, however, noted that a tiered
system to limit the impact of the ECB rate cut on banks is being
planned. There may be a small asset purchase program, but
nothing major for now, it said.
    Rupert also added that similarly with the Federal Reserve,
there was a time when the market priced in a 50 basis-point cut.
    "That expectation has come off as well because we have seen
some stronger-than-expected U.S. data and of course because of
hopes that trade talks are back on and could see some
resolution," Rupert said.
    In afternoon trading, U.S. benchmark 10-year Treasury note
yields rose to 1.63% from 1.55% late on Friday.
Early in the session, 10-year yields hit a three-week high of
1.635%.
    Since the beginning of the year, 10-year yields have fallen
more than 100 basis points.
    Yields on 30-year bonds advanced to 2.108% from
2.022% on Friday, up from record lows of 1.905% touched in late
August. U.S. 30-year yields hit a three-week peak of 2.116%.
    At the short end of the curve, U.S. two-year yields rose to
1.58% from Friday's 1.528%.
    Gennadiy Goldberg, senior rates strategist at TD Securities
in New York, said U.S. yields are in a short-term correction
mode and could still go lower from here. TD expects the 10-year
yield to fall to 1.25% by the end of the year.
    
      September 9 Monday 3:26 PM New York / 1926 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9225       1.9582    -0.006
 Six-month bills               1.825        1.8722    0.000
 Two-year note                 99-216/256   1.5807    0.053
 Three-year note               99-238/256   1.5245    0.061
 Five-year note                98-226/256   1.4839    0.064
 Seven-year note               98-192/256   1.5649    0.067
 10-year note                  99-252/256   1.6267    0.077
 30-year bond                  103-52/256   2.1052    0.083
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -0.50         1.00    
 spread                                               
 U.S. 3-year dollar swap        -5.00         0.75    
 spread                                               
 U.S. 5-year dollar swap        -6.25         1.00    
 spread                                               
 U.S. 10-year dollar swap      -11.25         0.75    
 spread                                               
 U.S. 30-year dollar swap      -41.50         0.75    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by David
Gregorio and Dan Grebler)
  
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