December 5, 2019 / 7:58 PM / 2 months ago

UPDATE 1-TREASURIES-Yields rise on positive economic reports, then pare gains

 (Adds comment on positioning, updates market activity)
    By Ross Kerber
    BOSTON, Dec 5 (Reuters) - U.S. Treasury yields rose on
Thursday as a range of reports indicated continued economic
growth, then pared the gains in afternoon trading.
    The benchmark 10-year yield was 1.7 basis points
higher at 1.7982% in afternoon trading, reflecting increased
investor appetite for risk, after rising as much as 4.1 basis
points in the morning.
    Analysts attributed the yield increase to factors like a
fall in weekly jobless claims and a decline in the U.S. trade
deficit, which suggested trade could contribute to economic
growth in the fourth quarter.
    In addition, oil prices rose on Thursday ahead of an OPEC
meeting expected to lead to deeper output cuts.
    "All the factors are laying out better-than-expected
economic growth," said Stan Shipley, research analyst at
Evercore ISI. "Everything is going one way here," he said.
    Speaking in Washington in the early afternoon U.S. President
Donald Trump did threaten trade action with countries that are
not contributing enough to their defense.
    But overall no news offered an obvious reason for the later
decline, said Lou Brien, market strategist for DRW Trading,
making it likely to indicate trade flows as investors
repositioning bond portfolios.
    There are "not the obvious suspects we can look at" to
explain the lower yields, he said.
    The two-year yield typically moves in step with interest
rate expectations. On Thursday afternoon it was up less than a 
basis point to 1.5863%.
    Thursday's trading marked the second day of higher yields
after relatively positive comments by U.S. President Donald
Trump raised hopes of a trade agreement with China, the most
unpredictable factor in the market, and Wall Street's main
indexes also rose.
    The Commerce Department said the trade deficit tumbled 7.6%
to $47.2 billion, the smallest since May 2018, as both imports
and exports of goods declined. It was the second straight
monthly fall in the trade bill and the percent drop was the
biggest since January.
    While Washington and Beijing are working on a "phase one"
trade deal, the United States has ratcheted up tensions with
other trade partners.
    Despite the trade tensions there are few signs they are 
affecting the labor market. In a separate report on Thursday,
the Labor Department said initial claims for state unemployment
benefits dropped 10,000 to a seasonally adjusted 203,000 for the
week ended Nov. 30, the lowest since mid-April.
    The claims data has no bearing on November's employment
report, which is scheduled for release on Friday. 
    
    
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.5125       1.5435    -0.016
 Six-month bills               1.515        1.5521    -0.010
 Two-year note                 99-212/256   1.5883    0.004
 Three-year note               100-20/256   1.5976    0.006
 Five-year note                99-104/256   1.6245    0.019
 Seven-year note               99-76/256    1.7323    0.016
 10-year note                  99-144/256   1.7982    0.017
 30-year bond                  102-208/256  2.2454    0.016
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         1.50         0.25    
 spread                                               
 U.S. 3-year dollar swap        -2.25         0.50    
 spread                                               
 U.S. 5-year dollar swap        -3.25         0.00    
 spread                                               
 U.S. 10-year dollar swap       -7.25         0.50    
 spread                                               
 U.S. 30-year dollar swap      -33.50         0.50    
 spread                                               
 
 (Reporting by Ross Kerber; Editing by Steve Orlofsky and Chizu
Nomiyama)
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