July 13, 2020 / 2:06 PM / 23 days ago

TREASURIES-Yields rise, curve steepens as risk sentiment improves

    By Karen Brettell
    NEW YORK, July 13 (Reuters) - Long-dated U.S. Treasury
yields increased on Monday as rising stocks reflected improving
risk sentiment and as investors took advantage of last week's
rally in bond prices to reset short trades and bets on renewed
yield curve steepening.
    Wall Street's main indexes opened higher on Monday, with the
Nasdaq notching another record high as investors cheered signs
of progress in COVID-19 vaccine development and an upbeat start
to the second-quarter earnings season.
    A record increase in coronavirus cases raised demand for
safe haven debt late last week, with 10-year yields falling to
three-month lows on Friday.
    Investors are now using that move as an opportunity to reset
bets that long-dated yields will rise, and to reenter trades
that benefit from a steeper yield curve.
    “Today what it appears is some people are using the current
opportunity to either reestablish shorts, or reestablish
steepener positions,” said Jon Hill, an interest rate strategist
at BMO Capital Markets in New York.
    Benchmark 10-year notes yields rose three basis
points to 0.661%. They have traded in a relatively tight range 
since April, following a volatile month in March, when they fell
to record lows of 0.318%.  The yield curve between two-year and
10-year notes steepened one basis point to 50
basis points.
    Thirty-year bond yields increased four basis
points to 1.365%. The gap between five-year note and 30-year
bonds yields, which is a popular steepening
trade, widened two basis points to 105 basis points.
    Bets that the yield curve will steepen have increased as
Federal Reserve policy holds shorter-dated debt yields near
record lows, while long-dated yields are vulnerable to improving
economic conditions.
    Analysts at Goldman Sachs on Saturday recommended shorting
10-year notes, saying that “without the Fed opening up to
negative rates, (they) don’t really have a lot of room to rally
much further.”
    This comes even as new shutdowns meant to halt the spread of
the coronavirus threaten further economic damage.
    “Mitigation measures used to contain the outbreak are
unlikely to be as far-reaching as those adopted in March/April,
which means that the economic impact of the rising case count is
likely to be significantly smaller,” they said.
    
    July 13 Monday 9:39AM New York / 1339 GMT
                               Price                  
 US T BONDS SEP0               179-2/32     -0-24/32  
 10YR TNotes SEP0              139-16/256   -0-40/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.13         0.1322    0.000
 Six-month bills               0.1525       0.1547    0.003
 Two-year note                 99-239/256   0.1589    0.004
 Three-year note               99-204/256   0.1929    0.008
 Five-year note                99-180/256   0.3103    0.012
 Seven-year note               99-252/256   0.5023    0.018
 10-year note                  99-168/256   0.6611    0.028
 20-year bond                  99-192/256   1.1391    0.035
 30-year bond                  97-48/256    1.3651    0.039
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         6.75         0.75    
 spread                                               
 U.S. 3-year dollar swap         4.50         0.50    
 spread                                               
 U.S. 5-year dollar swap         3.25         0.00    
 spread                                               
 U.S. 10-year dollar swap       -2.00        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -46.50         0.25    
 spread                                               
                                                      
 
     

  
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