April 11, 2017 / 1:57 PM / 3 months ago

TREASURIES-U.S. bond yields fall ahead of 10-year note sale

5 Min Read

    * U.S. to sell $20 billion 10-year notes at 1 p.m. EDT
    * Geopolitical worries underpin safe-haven demand for bonds
    * Fed's Kashkari to make public appearance at 1:45 p.m. EDT

    By Richard Leong
    NEW YORK, April 11 (Reuters) - U.S. Treasury yields fell on
Tuesday for a second straight day as anxiety about possible U.S.
military strikes against Syria and North Korea and the outcome
of the French presidential election spurred demand for low-risk
government debt.
    The decline in bond yields was limited by selling among
investors and dealers to make room for $20 billon worth of
10-year Treasury notes, which is part of this week's $56 billion
worth of coupon-bearing government bond supply.
    "Any escalation in geopolitical concerns could push us back
lower in yields," said Justin Lederer, Treasury strategist at
Cantor Fitzgerald in New York.
    North Korean state media warned on Tuesday of a nuclear
attack on the United States in retaliation of any signs of U.S.
aggression amid worries about North Korea's advancing weapons
program.
    The White House signaled it was open to additional strikes
on Syria if its government uses chemical weapons again or
deploys barrels. U.S. President Donald Trump ordered a missile
strike on a Syrian air base last week in response to an alleged
Syrian military attack using deadly poison gas.
    Furthermore, a new poll suggesting a tightening presidential
race in France stoked worries about an anti-EU candidate, either
National Front's Marine Le Pen or far-left wildcard Jean-Luc
Melenchon, winning it all in next month's run-off.
    "We lived through Brexit. We lived through a Trump win so
anything could happen," Lederer said. 
    Benchmark 10-year Treasury yields were down 2
basis points at 2.337 percent in early trading on Tuesday. Last
Friday they fell to 2.269 percent, which was the lowest intraday
level since Nov. 18, following a government report showing a
steep drop in domestic hiring in March.
    Trading volume has been muted due to the Passover and
upcoming Easter holidays. U.S. financial markets will close on
the Good Friday holiday. 
    Traders expected the upcoming 10-year auction at 1 p.m.
(1700 GMT) to sell at a yield of 2.349 percent,
lower than 2.560 percent set at the prior auction which was the
highest yield since July 2014.
    Separately, investors have been monitoring for further clues
on the Federal Reserve's possible plan to begin paring
reinvestments into Treasuries and mortgage-backed securities
later this year, which is seen as a major step for the Fed to
unwind an extraordinary policy it adopted to combat the last
recession.
    At 1:45 p.m. (1745 GMT), Minneapolis Fed President Neel
Kashkari will participate in a question-and-answer session at an
event held by a Minnesota business group.
  April 11 Tuesday 9:39 a.m. New York / 1339 GMT
                               Price                  
 US T BONDS JUN7               152-8/32     0-15/32   
 10YR TNotes JUN7              125-48/256   0-72/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.815        0.828     -0.008
 Six-month bills               0.925        0.9423    -0.023
 Two-year note                 99-254/256   1.254     -0.020
 Three-year note               100-4/256    1.4946    -0.026
 Five-year note                100-10/256   1.8667    -0.033
 Seven-year note               99-220/256   2.1468    -0.034
 10-year note                  99-68/256    2.3338    -0.027
 30-year bond                  100-180/256  2.9642    -0.022
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        32.50         0.25    
 spread                                               
 U.S. 3-year dollar swap        24.50        -2.25    
 spread                                               
 U.S. 5-year dollar swap        10.00         0.50    
 spread                                               
 U.S. 10-year dollar swap       -3.75         0.00    
 spread                                               
 U.S. 30-year dollar swap      -40.00         0.00    
 spread                                               
 
    

 (Reporting by Richard Leong; Editing by Meredith Mazzilli)
  

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