June 22, 2017 / 3:15 PM / a month ago

TREASURIES-Yield curve steepens slightly on rise in oil prices

5 Min Read

    * Rebound in oil prices pressures 30-year yields higher
    * Profit-taking on 30-year bonds also pushes yields higher
    * Rate hike specticism keeps short-dated yields depressed
    * Traders await 30-year TIPS auction

    By Sam Forgione
    NEW YORK, June 22 (Reuters) - Yields on short-dated U.S.
Treasuries were stable to slightly lower on Thursday while those
on long-dated issues edged higher, suggesting the flattening of
the yield curve this week was stalling on profit-taking as well
as a rise in oil prices. 
    The yield curve between five-year notes and 30-year bonds
 briefly flattened to 94.9 basis points, the
narrowest since December 2007, as 30-year Treasury yields hit
more than a seven-month low of 2.713 percent. 
    That trading pattern was unwound later in the session,
however, as a recovery in U.S. crude prices from Wednesday's
10-month lows suggested greater inflationary pressures and
pushed yields on long-dated bonds slightly higher.
    U.S. 30-year U.S. Treasury yields have fallen in recent days
on worries about slowing U.S. inflation. Data last week showed
the so-called core Consumer Price Index (CPI) posted its
smallest rise since May 2015.
    In addition to the bounce in oil prices, analysts said
traders were taking profits from the recent rally in 30-year
bonds.
    The uptick in 30-year debt yields also occurred as traders
prepared for a 30-year Treasury Inflation-Protected Securities
(TIPS) auction later on Thursday. Traders typically sell
Treasuries ahead of auctions to make way for the new supply of
government debt, pushing yields higher.
    "At least today the long-end rally is taking a pause," said
Stanley Sun, interest rate strategist at Nomura Securities
International in New York.
    U.S. 30-year Treasuries were last down 6/32 in
price to yield 2.733 percent, from a yield of 2.724 percent late
on Wednesday. U.S. three-year Treasuries were last up
slightly in price to yield 1.492 percent, from a yield of 1.497
percent late on Wednesday. 
    Analysts said yields on short-dated Treasuries, which are
most sensitive to Federal Reserve policy, were remaining stable
to slightly-lower on skepticism that the U.S. central bank would
be able to raise interest rates again this year. 
    "The timing for the next rate hike is definitely getting
pushed out," said Subadra Rajappa, head of U.S. rates strategy
at Societe Generale in New York. "The market's not pricing in
aggressive rate hikes."
    Benchmark 10-year Treasuries were last down 3/32
in price to yield 2.165 percent, from a yield of 2.155 percent
late on Wednesday. U.S. two-year notes were last roughly flat in
price to yield 1.352 percent. 

  June 22 Thursday 10:54AM New York / 1454 GMT
                               Price                  
 US T BONDS SEP7               156-10/32    -0-6/32   
 10YR TNotes SEP7              126-152/256  -0-20/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.9575       0.9731    -0.021
 Six-month bills               1.0925       1.1138    -0.010
 Two-year note                 99-206/256   1.3524    0.000
 Three-year note               100-6/256    1.4919    -0.005
 Five-year note                99-230/256   1.7715    0.003
 Seven-year note               100-12/256   1.9926    0.008
 10-year note                  101-224/256  2.1633    0.008
 30-year bond                  105-120/256  2.7311    0.007
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.50         0.50    
 spread                                               
 U.S. 3-year dollar swap        16.00         0.75    
 spread                                               
 U.S. 5-year dollar swap         5.25         0.00    
 spread                                               
 U.S. 10-year dollar swap       -4.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -34.00        -0.50    
 spread                                               
 
 (Reporting by Sam Forgione; Editing by Paul Simao)
  

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