April 10, 2017 / 7:46 PM / in 6 months

TREASURIES-U.S. bond yields slip on safe-haven demand

    * Investors wary of developments in Europe, Syria, North
Korea
    * U.S. sells $24 billion 3-year notes to lowest bids since
2009
    * Fed could begin balance sheet wind-down by year-end
-Bullard
    * Yellen to speak on policy at U. Michigan at 4:10 p.m. EDT

 (Update market action, add quote)
    By Richard Leong
    NEW YORK, April 10 (Reuters) - U.S. Treasury yields fell on
Monday as jitters about the French presidential election,
concerns about North Korea and tension between U.S. and Syria
underpinned safe-haven demand for U.S. government debt.
    On the other hand, reduced trading volume because of 
Passover and Easter holidays this week may end up depressing
bids for the $56 billion worth of coupon-bearing Treasuries,
analysts said.
    "You are getting some safe-haven bids on geopolitical
concerns," said Guy LeBas, chief fixed income strategist at
Janney Montgomery Scott in Philadelphia.
    Polls released on Monday showed a tight first-round French
presidential contest on April 23, led by anti-EU, anti-immigrant
National Front candidate Marine Le Pen and centrist Emmanuel
Macron. They indicated Macron would beat Le Pen in a May 7
runoff.
    The possibility of a Le Pen victory has raised fears that
France, the euro zone's second-biggest economy, might withdraw
from the currency bloc.
    In the Middle East, U.S. President Donald Trump is open to
additional strikes on Syria following last week's missile
assault in response to civilians killed by chemical attacks by
Syria's military, a White House spokesman said.
    Unfounded rumors about military maneuvers in the Korean
peninsula amid concerns about North Korea's advancing weapons
program caused a brief dip in stock prices and bond yields to
session lows, traders said.
    The decline in bond yields was limited by poor demand at a
$24 billion three-year note auction where the bid-to-cover ratio
was the weakest since July 2009.
    The U.S. Treasury Department will sell $20 billion of
10-year notes on Tuesday and $12 billion of 30-year bonds on
Wednesday.
    The yield drop was also mitigated by the possibility the
U.S. central bank will begin paring reinvestments into
Treasuries and mortgage-backed securities.
    Earlier Monday, St. Louis Fed President James Bullard said
the Fed could begin winding down its $4.5 trillion balance sheet
later this year.
    Wall Street's top banks see the central bank making such a
move in 2017, according to a Reuters poll conducted on Friday.
    
    Investors await further clues on balance sheet normalization
from Fed Chair Janet Yellen, who will participate in a
discussion on public policy at the University of Michigan at
4:10 p.m. (2010 GMT).
   The yield on the benchmark 10-year Treasury was
2.362 percent, down 1 basis point from late on Friday, while the
yield on 30-year was 1 basis point lower at 2.988
percent.    
    U.S. financial markets will close on the Good Friday
holiday. 
  April 10 Monday 3:21PM New York / 1921 GMT
                               Price                  
 US T BONDS JUN7               151-24/32    0-8/32    
 10YR TNotes JUN7              124-232/256  0-24/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.7925       0.805     -0.015
 Six-month bills               0.9375       0.9549    0.003
 Two-year note                 99-242/256   1.2781    -0.008
 Three-year note               100-92/256   1.4989    -0.005
 Five-year note                99-226/256   1.8998    -0.011
 Seven-year note               99-164/256   2.1808    -0.011
 10-year note                  99-4/256     2.3625    -0.010
 30-year bond                  100-60/256   2.988     -0.009
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        31.75        -1.00    
 spread                                               
 U.S. 3-year dollar swap        26.50        -1.50    
 spread                                               
 U.S. 5-year dollar swap         9.50        -1.00    
 spread                                               
 U.S. 10-year dollar swap       -3.75        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -40.00         0.00    
 spread                                               
 
    

 (Reporting by Richard Leong; Editing by W Simon and Steve
Orlofsky)
  

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