April 11, 2017 / 7:27 PM / 3 months ago

TREASURIES-Geopolitical worries stoke U.S. bond rally

5 Min Read

    * Possible U.S. military moves seen stymieing fiscal
stimulus
    * U.S. 30-year yield touches lowest level since January
    * U.S. sells $20 billion 10-year notes to soft demand

 (Recast, update market action, add quote)
    By Richard Leong
    NEW YORK, April 11 (Reuters) - The U.S. government debt
market rallied on Tuesday with the 30-year yield touching near
three-month lows as fresh concerns about the French presidential
election and possible U.S. military action against Syria and
North Korea spurred safe-haven demand for Treasuries.
    The decline in bond yields was limited by selling among
investors and dealers to make room for this week's $56 billion
of coupon-bearing government debt supply, which included $20
billion worth of 10-year notes sold on Tuesday.
    Trading volume has been muted due to the Passover and
upcoming Easter holidays. U.S. financial markets will be closed
on Friday in observance of the Good Friday holiday.
    "The catalyst today was largely geopolitical with heightened
concerns about Syria and North Korea," said Craig Bishop, RBC
Wealth Management's lead strategist for U.S. fixed income in
Minneapolis. 
    North Korean state media warned on Tuesday of a nuclear
attack on the United States in retaliation to any signs of U.S.
aggression amid worries about Pyongyang's advancing weapons
program.
    The White House also signaled it was open to additional
strikes on Syria if its government uses chemical weapons again
or deploys barrel bombs. 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 poison gas that killed
scores of civilians.
    A new poll in Europe suggested a tightening presidential
race in France, stoking 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 runoff.

    The Trump administration's focus on Syria and North Korea
has led investors to rethink on its commitment on tax cuts and
infrastructure spending.
    "Anything that pushes us away from the possibility of fiscal
stimulus is causing a further reversal of the reflation trade,"
said Mike Lorizio, head of Treasuries trading at Manulife Asset
Management in Boston.
    Part of the so-called reflation trade that stemmed from
Trump's campaign pledge on fiscal stimulus to bolster the
economy was the unloading of longer-dated Treasuries.
    Traders have stepped back into bonds in recent weeks in the
wake of Trump and the Republican-controlled Congress failing to
enact healthcare reform.
    U.S. benchmark 10-year Treasury yields fell 6
basis points to 2.302 percent.
    The 30-year bond yield was down over 5 basis
points at 2.931 percent after touching 2.925 percent which was
the lowest since Jan. 17.
    U.S. yields briefly retreated from session lows after a soft
10-year note auction.
    
  Tuesday, April 11 at 1500 EDT (1900 GMT):
                                    Price                
 US T BONDS JUN7                 153          1-7/32     
 10YR TNotes JUN7                125-128/256  0-152/256  
                                    Price      Current     Net
                                                yield    change
                                                (pct)     (bps)
 Three-month bills               0.81         0.823      -0.013
 Six-month bills                 0.9275       0.9448     -0.020
 Two-year note                   100-8/256    1.2338     -0.040
 Three-year note                 100-26/256   1.4652     -0.056
 Five-year note                  100-52/256   1.832      -0.068
 Seven-year note                 100-24/256   2.1104     -0.071
 10-year note                     99-148/256  2.298      -0.063
 30-year bond                    101-104/256  2.9289     -0.057
                                                         
   DOLLAR SWAP SPREADS                                   
                                 Last (bps)      Net     
                                               Change    
                                                (bps)    
 U.S. 2-year dollar swap spread   32.25         0.00     
 U.S. 3-year dollar swap spread   24.50        -2.25     
 U.S. 5-year dollar swap spread   10.00         0.50     
 U.S. 10-year dollar swap         -4.25        -0.50     
 spread                                                  
 U.S. 30-year dollar swap        -40.25        -0.25     
 spread                                                  
 
 (Reporting by Richard Leong, editing by G Crosse)
  

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