January 29, 2018 / 7:38 PM / a year ago

TREASURIES-Yields highest since 2014 on bullish economic outlook

 (Adds quotes, updates prices)
    * 10-year yields break above long-term trendline
    * Central banks expected to reduce accomodation
    * Fed meeting, U.S. refunding, data in focus

    By Karen Brettell
    NEW YORK, Jan 29 (Reuters) - U.S. Treasury yields surged to
more than three-year highs on Monday after comments from a
European Central Bank official added to expectations that
central banks globally will reduce stimulus as the economic
outlook improves.
    A break of technical support levels added to bearish
sentiment with benchmark 10-year yields rising above the
trendline that has marked a more than 30-year bull run dating
back to the 1980s.
    “Key levels were taken out, the trend is broken,” said Tom
di Galoma, a managing director at Seaport Global Holdings in New
York. “It’s probably a realization that the global economy is
moving ahead and has quite a bit of steam.”
    Ten-year note yields reached a peak of 2.727 percent, the
highest since April 2014. The notes             were last down
11/32 in price to yield 2.701 percent.
    Central banks are removing support for bond markets as the
economic outlook brightens.
    "Overall the theme is we’ve had an uptick in growth around
the globe," said Michael Cloherty, head of U.S. rates strategy
at RBC Capital Markets in New York.
    Dutch central bank president Klaas Knot, who is also a
member of the ECB governing council, said on Sunday that "there
is no reason whatsoever” for the ECB to continue its asset
purchase program.             
    Some economists expect the Federal Reserve to raise its
economic assessment when it concludes its two-day meeting on
Wednesday. That could increase the probability that the U.S.
central bank raises interest rates four times this year.
    Interest rates futures are currently pricing in three or
less rate hikes this year, according to the CME Group’s FedWatch
    The United States will need to increase issuance this year
to make up for declining bond purchases by the Fed.
    On Wednesday the Treasury Department is expected to announce
the first increases in the size of its debt auctions since the
financial crisis.
    Initially supply increases are expected to be made in
Treasury bills and shorter-dated notes. Over time, however,
rising debt needs will also require increases in longer-dated
    "It’s a staggeringly huge financing need," said Cloherty.
"When you have to borrow over $1 trillion a year every year as
far as the eye can see, you can’t just rely on bills" and
short-dated notes, he said.
    Traders are also focused on a busy week of data this week,
which will culminate in Friday’s jobs report for January.

 (Editing by Andrew Hay and Chizu Nomiyama)
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