April 17, 2017 / 7:23 PM / 4 months ago

TREASURIES-Yields rise as stock gains reduce demand for U.S. bonds

 (Adds comments from Mnuchin, updates prices)
    * Rising stock prices reduce demand for bonds
    * Quarles nomination seen helping banks
    * 10-year note yields fall to five-month lows overnight

    By Karen Brettell
    NEW YORK, April 17 (Reuters) - U.S. Treasury yields rose
from five-month lows on Monday as stocks gained, reducing demand
for safe-haven debt, and on reports that the Trump
administration is likely to nominate a bank friendly official as
the Federal Reserve's vice chairman for bank supervision.
    U.S. stocks were on track to snap a three-day losing streak
on Monday as investors turned their attention to the
first-quarter earnings season.             
    "When you look at equities ... I think that's part of it,"
said Justin Lederer, an interest rate strategist at Cantor
Fitzgerald in New York. 
    The Wall Street Journal and Bloomberg News were among
publications reporting that Randal Quarles, a former top
Treasury Department official during the Bush administration, is
expected to be nominated to the Fed's bank supervisory role.
    "The feeling is that he might start pushing through some
regulations that might help the banking sector, and take the
pressure off yields moving lower," said Tom di Galoma, a
managing director at Seaport Global Holdings in New York.
    Benchmark 10-year notes             were last down 7/32 in
price to yield 2.252 percent, after dropping to 2.198 percent
overnight, the lowest since Nov. 17.
    Bonds extended price losses after the Financial Times quoted
U.S. Treasury Secretary Steven Mnuchin saying that he expects
tax reform this year, though the prior August timeline is "not
realistic."
    U.S. Treasury yields fell to five-month lows overnight as
rising geopolitical tensions in North Korea hurt risk appetite.
    Lederer said that long-dated bonds also underperformed on
Monday after the U.S. Treasury sent out to dealers on Friday
asking them for their thoughts on the prospect of introducing
ultra-long bonds.
    The yield curve between five-year notes and 30-year bonds
               steepened to 115 basis points, from 112 basis
points last Thursday.    
    Weak U.S. retail sales and consumer price data on Friday
also put a dent in expectations that growth will be sufficient
for the Fed to raise interest rates two more times this year.
    "The CPI number came out very weak on Friday, and weak PPI
on Thursday, so the inflation outlook doesn’t look all that
great for the Fed," said di Galoma.
    U.S. retail sales fell for a second straight month in March
and consumer prices dropped for the first time in just over a
year.             
    Data on Thursday showed producer prices falling in March for
the first time in seven months.             
    

 (Additional reporting by Fergal Smith in New York; Editing by
Meredith Mazzilli and Diane Craft)
  
 
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