June 20, 2018 / 7:49 PM / 2 months ago

TREASURIES-Yields climbs as risk aversion eases, corporate bond supply rises

    * Fed's Powell repeats case for gradual rate rises
    * U.S. yield curve steepens amid trade war
    * Latest U.S. corporate bond supply includes big names

 (Adds comments, updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 20 (Reuters) - U.S. Treasury yields on
Wednesday rebounded from sharp falls in the previous session, as
expectations of further U.S. interest rate increases diverted
the market's attention from Washington's trade conflict with
China.
    A slew of corporate bond supply also helped drive the
sell-off in Treasuries, pushing yields higher, analysts said.
Ahead of corporate supply, bond managers tend to hedge against
large interest rate moves by selling their U.S. government debt.
    "The Treasury market is caught between the dichotomy of
heavy corporate bond supply and Washington imposing new trade
tariffs on China," said Tom di Galoma, managing director of
government trading at Seaport Global in New York.
    "Credit supply is causing rates to rise while trade tariffs
are causing a safety bid."  
    Some of the big corporate issuers included Walmart Inc's $16
billion bond offering, CIBC's $1.75 billion covered bond sale,
UBS London's $1 billion offering, and the Royal Bank of
Scotland's $2 billion bond issue, according to Thomson Reuters
unit IFR. 
    Yields also were propped up by remarks from Federal Reserve
Chairman Jerome Powell, who said on Wednesday that the U.S.
central bank should continue with a gradual pace of rate
increases.
    Before Powell's comments, made at a central banking
conference in Portugal, U.S. yields were flat, recovering from a
slide in the previous session triggered by U.S. President Donald
Trump's threat to impose a 10 percent tariff on $200 billion of
Chinese goods, and China's warning of retaliation.
    In afternoon trading, U.S. benchmark 10-year yields rose to
2.927 percent, from Tuesday's 2.893 percent.
    U.S. 30-year yields were up at 3.063 percent, 
compared with 3.028 percent on Tuesday.
    U.S. two-year yields were at 2.561 percent,
slightly up from Tuesday's 2.545 percent.
    The yield curve, meanwhile, steepened on Wednesday, with the
spread between U.S. 5-year notes and 30-year bonds widening for
a fourth straight session to 26.90 basis points.
    Analysts also kept an eye on the possible inversion of the
U.S. 7-year and 10-year note curve, with some
market participants expecting it to invert next week. The yield
curve inverts when short-term rates rise above longer-term bond
yields, a scenario which has preceded recent U.S. recessions.
    The 7-year and 10-year curve widened to 4.3 basis points on
Wednesday, after narrowing to 2.9 basis points last week.
    Analysts said an inversion of that curve could be a
precursor to the inversion of the more closely-watched yield
curve measures - 2-year and 10-year notes as well as 5-year
notes and 30-year bonds.
    
      June 20 Wednesday 3:06PM New York / 1906 GMT
                               Price                  
 US T BONDS SEP8               143-15/32    -0-20/32  
 10YR TNotes SEP8              119-160/256  -0-56/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.8975       1.9331    -0.010
 Six-month bills               2.08         2.1313    0.005
 Two-year note                 99-226/256   2.5618    0.017
 Three-year note               99-222/256   2.6715    0.020
 Five-year note                99-202/256   2.7958    0.027
 Seven-year note               99-236/256   2.8873    0.032
 10-year note                  99-140/256   2.9279    0.035
 30-year bond                  101-52/256   3.0632    0.035
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        25.50         0.25    
 spread                                               
 U.S. 3-year dollar swap        22.00         0.25    
 spread                                               
 U.S. 5-year dollar swap        13.75        -0.50    
 spread                                               
 U.S. 10-year dollar swap        5.75        -0.75    
 spread                                               
 U.S. 30-year dollar swap       -7.25        -1.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by James Dalgleish and Paul Simao)
  
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