February 8, 2018 / 7:24 PM / in 8 months

TREASURIES-Yields rise as stocks pare losses, on hawkish BoE

 (Adds auction results, quotes; updates prices)
    * Bank of England may accelerate rate increases
    * Treasury has soft demand for $30-year bond auction
    * Choppy stocks trading sways bond prices

    By Karen Brettell
    NEW YORK, Feb 8 (Reuters) - U.S. Treasury yields rose on
Thursday in choppy trading as stocks pared some of their earlier
weakness and after the Bank of England said interest rates
probably need to rise sooner, adding to expectations of reduced
central bank stimulus globally.
    Rising bond yields have spooked equity investors who worry
that higher rates may slow down growth. Volatility in equities,
at the same time, has at times added to a bid to hold low risk
U.S. government debt.
    “It is circular," said Ian Lyngen, head of U.S. rates
strategy at BMO Capital Markets in New York. "Higher rates lead
to lower stocks and lower stocks lead to lower rates to some
degree, and we’re trying to figure out where the transfer
mechanism from higher rates into slower growth potential is
going to occur.”
    Improving inflation and other economic data has led
investors to adjust for the prospect of faster economic growth
and the potential that the Federal Reserve may raise interest
rates faster than previously expected.
    A brightening outlook internationally is adding to pressure
on global fixed income markets. The BoE raised its growth
forecasts for Britain due to the strong global recovery.
            
    “We’ve got yet another confirmation that a major central
bank is wringing its hands over the possibility that economic
growth is accelerating beyond current capacity,” said Jim Vogel,
an interest rate strategist at FTN Financial in Memphis,
Tennessee.
    Benchmark 10-year note yields             rose as high as
2.884 percent on Thursday, just below Monday’s four-year high of
2.885 percent. The notes were last down 6/32 in price to yield
2.853 percent.
    Investors are also preparing for a large uptick in U.S.
government debt issuance this year to make up for declining
purchases by the U.S. central bank.
    The Treasury saw relatively soft demand for a $16 billion
sale of 30-year bonds on Thursday, the final sale of $66 billion
in coupon-bearing supply this week. The debt sold at less than 1
basis point higher than where the bonds traded before the
auction.             
    The result was not bad, however, considering that bonds
rallied heading into the auction as stocks fell.
    “The tail occurred effectively at the low yields of the
day…it’s not as dire as the outright statistics might suggest
the sponsorship for Treasuries was,” said Lyngen.
    

 (Editing by Bernadette Baum and Frances Kerry)
  
 
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