September 29, 2016 / 3:32 PM / a year ago

TREASURIES-U.S. yields inch higher as risk aversion eases

By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 29 (Reuters) - U.S. Treasury debt yields
edged higher for a second straight session on Thursday, as risk
appetite improved with oil and global stocks mostly posting
gains after news on Wednesday OPEC would cut crude supply.
    However, U.S. yields, which move inversely to prices, are
still trapped in tight ranges and could well get back to the 
current downtrend given geopolitical tensions and political
uncertainty, analysts said.
    There is tension in India, for instance, which could restore
bids for Treasuries. India said on Thursday it had conducted
"surgical strikes" on suspected militants preparing to
infiltrate from Pakistan-ruled Kashmir, making its first direct
military response to an attack on an army base it blames on
Pakistan and raising the risk of escalation. 
    Then there's the upcoming U.S. election. Any indication that
Republican candidate Donald Trump is gaining momentum heading
into the election could inject uncertainty into the market and
boost Treasury prices, said Mike Materasso, co-chair of Franklin
Templeton's fixed income policy committee in New York.
    "I wouldn't get caught up in the short-term moves in the
Treasury market," said Materasso. "The oscillations of five to
10 basis points are not that significant because if you look at
the 10-year chart over the last three months, we're still
trading in a narrow range."
    Concerns about Deutsche Bank and Wells Fargo remained a
focus for the market and investors are closely watching
developments at both banks. Deutsche Bank, which has spurred a
bid for Treasures for most of this week, has been embroiled in a
$14-billion legal battle with the U.S. government in connection
with the bank's issuance and underwriting of mortgage-backed
securities. 
    Wells Fargo is feeling the effects of a  sales scandal
involving the creation of as many as 2 million accounts without
customers' permission.
    In mid-morning trading, U.S. benchmark 10-year Treasury
notes were down 6/32 in price for a yield of 1.589
percent, up from 1.567 percent late on Wednesday.
    U.S. 30-year bonds fell 16/32 in price, yielding 2.312
percent, up from Wednesday's 2.288 percent. 
    On the front end of the curve, U.S. two-year notes were down
1/32 in price for a yield of 0.769 percent, up from 0.754
percent on Wednesday.
    The yield curve has also steepened, suggesting that global
uncertainty and an upcoming U.S. election will keep the Federal
Reserve on hold for now and prevent investors from buying the
front-end.
    The spread between five-year and 30-year yields widened to
116 basis points on Thursday. 

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea
Ricci)

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