July 20, 2018 / 3:09 PM / in 3 months

TREASURIES-Yields, rate hike views rise as Trump adds to Fed critique

    By Kate Duguid
    NEW YORK, July 20 (Reuters) - U.S. government bond yields
and expectations the Federal Reserve will raise interest rates
another two times this year increased  on Friday morning, even
as President Donald Trump repeated his criticism of the central
bank. 
    The president on Friday reiterated his disapproval of the
Fed's policy on raising interest rates, saying it takes away
from the United States' "big competitive edge," and lamented the
strength of the U.S. dollar.
    Trump also criticized Fed policy in an interview on CNBC on
Thursday, after which Treasury yields fell across the board.
Yields at the long end of the curve rose in the wake of the
second round of criticism on Friday.
    The 30-year Treasury bond yield rose 6.3 basis
points from Thursday's close to a session high of 3.03 percent.
Yields in the past month have remained in a narrow range, due in
part to lighter summer trading, so the move in the 30-year was
particularly noticeable.
    The 30-year yield moved while short-dated maturities held
steady because "we have above full employment, and if Trump is
successful in getting the Fed to back off its rate hikes, that
has the potential to create an overheating economy and rising
inflation, which is bad for 30-years," said Mary Ann Hurley,
vice president in fixed income at D.A. Davidson in Seattle.
    The yield on the benchmark 10-year note was last
at 2.89 percent, up 4.2 basis points from its 2.85 percent close
on Thursday. At the short end of the curve, the two-year note
 was up a single basis point at 2.61 percent.  
    The futures market implied traders saw an 86.86 percent
chance interest rates will be raised at the Federal Open Market
Committee's meeting on Sept. 26, versus an 85.70 percent chance
on Thursday, CME Group's FedWatch program showed. The
probability of a second rate hike in December rose from 53.69
percent on Thursday to 56.55 percent on Friday. 
    "Trump's comments have almost pushed Powell into having to
tighten in September. The Fed is one of the last independent
institutions out there and if Powell indicates he is letting the
administration control the Fed, the Fed is going to lose any
type of credibility," said Hurley.
    There was no significant U.S. economic data published on
Friday.  
    
      July 20 Friday 10:44AM New York / 1444 GMT
                               Price                  
 US T BONDS SEP8               144-17/32    -0-24/32  
 10YR TNotes SEP8              120-36/256   -0-40/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9525       1.989     -0.005
 Six-month bills               2.0925       2.1437    -0.005
 Two-year note                 99-214/256   2.5869    -0.008
 Three-year note               99-228/256   2.6633    -0.003
 Five-year note                99-110/256   2.7491    0.009
 Seven-year note               99-128/256   2.8297    0.020
 10-year note                  100          2.8747    0.028
 30-year bond                  102-64/256   3.01      0.043
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        23.50         1.00    
 spread                                               
 U.S. 3-year dollar swap        21.00         0.75    
 spread                                               
 U.S. 5-year dollar swap        14.50         0.25    
 spread                                               
 U.S. 10-year dollar swap        6.50         0.00    
 spread                                               
 U.S. 30-year dollar swap       -5.75        -0.75    
 spread                                               
 


    




 (Reporting by Kate Duguid)
  
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