August 6, 2019 / 12:53 PM / 4 months ago

TREASURIES-U.S. yields rise ahead of 3-year note sale

    * U.S. yields fall after U.S. labels China a currency
manipulator
    * Yields bounce as China fixes yuan at a bit stronger level
    * Latest 3-year note seen selling at lowest yield in two
years

    By Richard Leong
    NEW YORK, Aug 6 (Reuters) - U.S. Treasury yields edged
higher on Tuesday, as traders trimmed their bond holdings in
advance of a $38 billion auction of three-year notes, the first
leg of this week's $84 billion quarterly refunding.
    The modest bounce in U.S. yields followed four straight
sessions of scorching declines as investors rushed into U.S.
government debt to shield their money from stocks and other
risky assets in response to rising trade friction between China
and the United States and bets on more stimulus from global
central banks to combat slowing business activity.
    Investors are expected to place solid bids for the latest
three-year note supply, which is likely to fetch
its lowest yield in nearly two years, analysts said.
    "For the three-year, we expect decent end-user demand given
the significant global concerns and expectations for major
global central banks to ease monetary policy going forward,"
said Justin Lederer, Treasury strategist at Cantor Fitzgerald in
New York.
    Some selling in U.S. bonds emerged on Tuesday as investor
fears were held in check after China kept its currency in a
slightly stronger level a day after it let the yuan weaken to
seven to a dollar, a level not seen in a decade.
    That decision from Beijing, together with Chinese state
media saying on Monday local companies suspended their purchases
of American agricultural goods, touched off a massive sell-off
in stock markets around the world and a safe-haven stampede into
Treasuries, yen and gold. 
    Late Monday, U.S. Treasury Secretary Steven Mnuchin
designated China a currency manipulator, kicking off a formal
process of bilateral negotiations between the world's two
largest economies.
    Worries of rising tensions between China and the United
States and growing drag on the global economy led a rush of
buying of Treasuries, pushing U.S. 10-year yields to
1.672% overnight, marking their lowest level since Oct. 5, 2016.
    At 8:31 a.m. (1231 GMT), benchmark 10-year yields were up
1.7 basis points at 1.753%. 
    The yields on other Treasuries maturities also rebounded
from their recent lows. 
    The two-year yield, which is sensitive to
traders' view on Fed policy, was up 2 basis points at 1.603%
after hitting 1.529%, which was its lowest level since October
2017.
    The deterioration in trade talks between China and the
United States has stoked bets the Federal Reserve would increase
the number of rate cuts it hinted at last week.
    Interest rate futures implied traders were fully positioned
for the U.S. central bank to lower key lending rates by at least
a quarter-point at its Sept. 17-18 policy meeting, according to
CME Group's FedWatch program.
August 6 Tuesday 8:32AM New York / 1232 GMT
                               Price                  
 US T BONDS SEP9               160-15/32    -8/32     
 10YR TNotes SEP9              129-164/256  -7/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2            2.0382    -0.001
 Six-month bills               1.945        1.9971    0.003
 Two-year note                 100-72/256   1.6051    0.022
 Three-year note               100-136/256  1.5641    0.021
 Five-year note                100-232/256  1.5602    0.024
 Seven-year note               101-124/256  1.649     0.023
 10-year note                  105-140/256  1.7547    0.019
 30-year bond                  112-76/256   2.302     0.007
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       14.80        1.30      
 30-year vs 5-year yield       74.10        0.50      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -0.50         0.75    
 spread                                               
 U.S. 3-year dollar swap        -4.50         1.00    
 spread                                               
 U.S. 5-year dollar swap        -6.25         0.75    
 spread                                               
 U.S. 10-year dollar swap      -11.25         1.00    
 spread                                               
 U.S. 30-year dollar swap      -41.75         1.50    
 spread                                               
 
    

 (Reporting by Richard Leong; Editing by Steve Orlofsky)
  
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