September 30, 2019 / 7:59 PM / 22 days ago

TREASURIES-Yields flat as month-end flows reverse earlier steepening

(New throughout, updates prices, market activity and comments)

By Kate Duguid

NEW YORK, Sept 30 (Reuters) - Treasury yields ended Monday roughly unchanged as month- and quarter-end flows helped erase the yield curve steepening that happened earlier in the session.

Traders must rebalance their portfolios at the end of the month which can sometimes lead to market moves that are out of sync with news and economic data.

In the morning, longer-dated U.S. Treasury yields rose faster than those at the short end of the yield curve as trade concerns, among other factors, decreased investor appetite for risk. But by the end of the North American session, yields ended near where they closed on Friday,

“It is peculiar that the market is less and less confident that the Fed is going to be providing” another rate cut this year, said John Herrmann, director of U.S. rates strategies at MUFG Securities. “In the last couple of hours of trading, maybe it’s just some of the flows surrounding month-end and quarter-end.”

The two-year note yield, a proxy for investor expectations of rate hikes, was up less than half a basis point to 1.628%, with the benchmark 10-year note yield also up 0.4 basis point at 1.677%. The spread between the two- and 10-year note yields - the traditional measure of the yield curve - fell to 4.7 basis points after rising as high as 6.2 basis points earlier in the day.

“It’s a little bit of a surprise today because it started out relatively bearish but sentiment has definitely shifted,” said Herrmann.

Short-dated yields held steady despite softness in the Institute for Supply Management’s Chicago Business Barometer, which dropped to 47.1 in September from 50.4 last month.

Jon Hill, U.S. rates strategist at BMO Capital Markets, attributed the earlier steepening to overnight headlines including outgoing European Central Bank President Mario Draghi’s interview with the Financial Times, in which he expressed the need for fiscal policy to support the bloc’s growth prospects.

The curve steepening, Hill said, could also be attributable to the Bank of Japan’s announcement on Monday that it could trim the size of its buying in long-term government bonds in October compared to September, while increasing its buying in short-date bonds.

Also on Monday, China warned that instability in international markets from any “decoupling” of China and the United States, after sources said the Trump administration was considering delisting Chinese companies from U.S. stock exchanges. (Reporting by Kate Duguid Editing by Alistair Bell and David Gregorio)

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