October 1, 2018 / 2:24 PM / 14 days ago

TREASURIES-Yields up after Canada, U.S. forge last-minute trade pact

    By Kate Duguid
    NEW YORK, Oct 1 (Reuters) - Yields on U.S. government bonds
rose on Monday after the United States and Canada announced a
deal on Sunday to save NAFTA as a trilateral pact with Mexico. 
    Across maturities, yields rose from Friday's close, with
most gains coming at the long end of the curve, as traders sold
the safe-haven debt for riskier assets. Equities benefited, with
the S&P 500 index up 17.36 points from Friday's close,
the Dow Jones Industrial Average up 178.32 points.
    Sunday's agreement will preserve the three-country pact,
rescuing a deal that underpins a $1.2 trillion open trade zone
that had been about to collapse after nearly a quarter century.
The North American Free Trade Agreement (NAFTA) will become the
United States-Mexico-Canada Agreement (USMCA).
    "There is a pretty significant risk-on tone following the
new NAFTA agreement," said Mike Lorizio, senior fixed income
trader at Manulife Asset Management in New York.
    Yields, however, had fallen modestly by 9:42 am ET (13:42
GMT), reversing some of their early morning gains. 
    "This is a positive, and you've seen risk assets respond,
and you've seen Treasuries respond a bit, but U.S. fundamentals
are so strong right now that the effects of these negotiations
had already been priced in," said Lorizio.
    Analysts have suggested that the market has been more
focused on trade tensions with China, which has seen Washington
and Beijing volley billions of dollars in new tariffs. On Sept.
24 the United States imposed tariffs covering $200 billion worth
of Chinese goods. China retaliated with tariffs on $60 billion
worth of U.S. products.
    A deluge of new corporate bond issues is also expected to
pressure Treasury prices this week.   
   At the end of last week, "we saw underperformance at the back
end of the curve as we've been hearing talk of $40 billion or
more in new corporate issuance. When you see corporate issuance
skewed to the back end of the curve, that can put a decent
amount of pressure on as investors find homes for that supply,"
said Lorizio. 
    The 10-year Treasury yield was last at 3.071
percent, up from its close Friday at 3.056 percent. The 30-year
bond yield was last at 3.214 percent, up from
Friday's close at 3.196 percent. The front end of the curve,
however, was less affected. The two-year note yield
up less than a basis point at 2.823 percent.
    The move in longer-dated yields steepened the curve, with
the spread between two- and 10-year yields up
about a basis point to 24.6. The spread between the five- and
30-year yields was also up about a basis point to
26. 

  October 1 Monday 9:59AM New York / 1359 GMT
                               Price                  
 US T BONDS DEC8               140-4/32     -0-12/32  
 10YR TNotes DEC8              118-180/256  -0-20/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.1725       2.2142    0.015
 Six-month bills               2.3125       2.3716    0.000
 Two-year note                 99-220/256   2.8229    0.004
 Three-year note               99-156/256   2.8886    0.006
 Five-year note                99-158/256   2.958     0.010
 Seven-year note               99-208/256   3.0299    0.013
 10-year note                  98-84/256    3.0724    0.016
 30-year bond                  95-208/256   3.2192    0.023
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.00        -0.75    
 spread                                               
 U.S. 3-year dollar swap        15.50        -0.75    
 spread                                               
 U.S. 5-year dollar swap        11.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap        5.25        -0.25    
 spread                                               
 U.S. 30-year dollar swap       -8.00        -0.50    
 spread                                               
 
    





 (Reporting by Kate Duguid
Editing by Susan Thomas)
  
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