August 10, 2018 / 2:21 PM / 4 months ago

TREASURIES-U.S. yields hit 3-week lows on turmoil in Turkey

    * U.S. core CPI comes in stronger-than-forecast in July
    * Trump authorizes higher tariffs on Turkish steel, aluminum
    * Overall solid August refunding underpins Treasuries demand

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Aug 10 (Reuters) - U.S. Treasury yields fell to
near three-weeks lows on Friday as investors scooped up low-risk
government debt on anxiety about Turkey's financial problems
spreading to other emerging economies and lenders exposed to
this sector.
    Turkey's finance minister Berat Albayrak rolled out the
government's new economic plan on Friday, promising central bank
independence and tighter budget discipline, but giving few
details to reassure investors and stem a currency crisis.
    His plans gave no support to the free-falling lira, and the
sell-off accelerated after U.S. President Donald Trump said
Washington would double down on steel and aluminum sanctions
against Turkey.
    Rattled traders dumped more lira on Friday for its
biggest single-day loss since Turkey adopted a floating-currency
regime in 2001.
    "It's the contagion fear and what exposure European banks
have to Turkey," said Larry Milstein, head of government and
agency trading at R.W. Pressprich & Co. in New York. "We are
seeing some safe-haven bids for Treasuries and Bunds."
    The yield on benchmark 10-year Treasury notes
touched 2.886 percent, its lowest in almost three weeks. At
10:00 a.m. (1400 GMT), it was down 5 basis points at 2.884
percent, putting it on track for its steepest weekly fall in 11
weeks.
    Ten-year German Bund yield fell 5 basis points
to 0.3310 percent.
    Friday's safe-haven bids for Treasuries added to earlier
buying following perceived solid August government debt
refunding where the government raised nearly $40 billion of
fresh cash for spending and debt servicing.
    Fair demand for record offerings of 10-year and 30-year
Treasuries was encouraging as the government will further
increase its borrowing to fund its budget deficit due largely to
the massive tax cut in December.
    "The latest auction cycle went pretty well. Demand seems to
be there. It's comforting for the market," Milstein said.
    Friday's drop in U.S. bond yields was limited after data
showed underlying domestic inflation grew a tad stronger than
forecast in July, reducing bets that price growth would weaken
in the coming months, analysts said.
    The U.S. consumer price index (CPI) grew 0.2 percent as
expected last month, bringing its year-over-year advance to 2.9
percent, the Labor Department said on Friday. 
    The CPI core rate, which excludes volatile food and energy
prices, increased 0.2 percent in July, lifting its annual gain
to 2.4 percent for its biggest gain since September 2008.

    The latest CPI figures supported the view the Federal
Reserve would raise key overnight borrowing costs by a quarter
point to 2.00-2.25 percent at its Sept. 25-26 policy meeting. 
August 10 Friday 10:00AM New York / 1400 GMT
                               Price                  
 US T BONDS SEP8               144-4/32     27/32     
 10YR TNotes SEP8              120-40/256   14/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.0075       2.0453    -0.006
 Six-month bills               2.175        2.2292    -0.006
 Two-year note                 100-4/256    2.6165    -0.037
 Three-year note               100-40/256   2.6954    -0.047
 Five-year note                99-246/256   2.7583    -0.055
 Seven-year note               100-66/256   2.8338    -0.056
 10-year note                  99-236/256   2.884     -0.051
 30-year bond                  99-64/256    3.0383    -0.047
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       26.60        -1.10     
 30-year vs 5-year yield       27.90        1.55      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.25         0.00    
 spread                                               
 U.S. 3-year dollar swap        16.75         0.50    
 spread                                               
 U.S. 5-year dollar swap        12.75         0.50    
 spread                                               
 U.S. 10-year dollar swap        5.75         0.25    
 spread                                               
 U.S. 30-year dollar swap       -7.00        -0.25    
 spread                                               
 
    
    
    

    
 (Reporting by Richard Leong)
  
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