January 9, 2017 / 7:50 PM / 7 months ago

TREASURIES-U.S. yields slip on jitters about China, Britain

* Worries about yuan, 'hard Brexit' spur safety bids for
bonds
    * Hedging on corporate bond supply limits drop in bond
yields
    * U.S. to sell $56 billion in longer-dated government debt
    * Fed's Rosengren calls for gradual but faster rate
increases

 (Updates market action)
    By Richard Leong
    NEW YORK, Jan 9 (Reuters) - U.S. Treasury yields fall as
nervousness about the China's currency and Britain's exit from
the European Union rekindle safe haven demand for low-risk
government bonds ahead of this week's $56 billion supply.
    A weakening Chinese yuan has stoked worries about the
country's capital outflows. On Saturday, the government said
foreign exchange reserves fell to near a six-year low at the end
of December. 
    China's offshore yuan fell a bit against the dollar on
Monday following a large increase last week amid speculation the
Chinese central bank pushed up overnight borrowing costs to
quell bearish bets on the currency.
    "People are worried what China is going to do next," said
Thomas Roth, senior Treasury trader at MUFG Securities America
in New York.
    Comments from British Minister Theresa May revived fears
about a "hard Brexit," in which border controls will be given
priority over market access. 
    May said in a television interview on Sunday she is not
interested in Britain keeping "bits" of its EU membership. 
 
    The yield on benchmark 10-year Treasuries was
down 3 basis points at 2.385 percent, while the 30-year bond
yield was 3 basis points lower at 2.975 percent.
    Analysts said the day's drop in yields result from reduced
trading, with Japanese markets closed for a holiday.
    Monday's decline in yields was mitigated as some investors
prepared for this week's supply in longer-dated government
bonds: $24 billion in three-year notes, $20 billion in 10-year
debt and $12 billion in 30-year bonds. 
    Bond dealers hedging on the corporate bond supply they
underwrite also put a floor on the yield decline.
    Companies are expected to sell $25 billion to $30 billion in
investment-grade debt this week after last week's $55 billion in
supply was the sector's third-biggest week of issuance on
record, according to IFR, a unit of Thomson Reuters.
 
    A solid U.S. December jobs report has reinforced the view
the Federal Reserve might raise interest rates at a
faster-than-expected pace in 2017.
    Boston Fed President Eric Rosengren said on Monday, "I
expect that appropriate monetary policy will need to normalize
more quickly than over the past year." 
    At a separate event, Atlanta Fed President Dennis Lockhart
said it was too early to judge how the incoming Trump
administration, which has spoke of fiscal stimuli, may change
the path of the economy. 
    
 Prices as of Monday, Jan. 9 at 1434 EST (1934 GMT):
                               Price                  
 US T BONDS MAR7               152-22/32    29/32     
 10YR TNotes MAR7              124-208/256  104/256   
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             0.495        0.5025    -0.017
 Six-month bills               0.5725       0.5821    -0.028
 Two-year note                 100-30/256   1.1897    -0.028
 Three-year note               99-198/256   1.4542    -0.030
 Five-year note                100-148/256  1.8776    -0.044
 Seven-year note               100-120/256  2.1771    -0.051
 10-year note                  96-192/256   2.372     -0.046
 30-year bond                  98-52/256    2.966     -0.037
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        27.75         0.75    
 spread                                               
 U.S. 3-year dollar swap        21.25         0.00    
 spread                                               
 U.S. 5-year dollar swap         4.00         0.75    
 spread                                               
 U.S. 10-year dollar swap      -12.75         0.25    
 spread                                               
 U.S. 30-year dollar swap      -49.00         0.00    
 spread                                               
 
    

 (Reporting by Richard Leong)

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