February 27, 2017 / 9:03 PM / 6 months ago

TREASURIES-Yields rise on Trump expectations, Fed's Kaplan comments

    * Investors await Trump speech to joint session of Congress
    * Yields rise from at least two-week lows hit Friday
    * Fed's Kaplan says U.S. central bank might need to raise
rates in near future

 (Updates prices, adds analyst comments)
    By Sam Forgione
    NEW YORK, Feb 27 (Reuters) - U.S. Treasury yields rose on
Monday from multi-week lows touched Friday on expectations that
a speech by U.S. President Donald Trump due on Tuesday could
drive yields higher, while hawkish comments from a Federal
Reserve official also contributed. 
    Analysts said investors were adjusting positions after
growing bullish on Treasuries last Friday, when benchmark
10-year note yields slumped to 2.31 percent, their
lowest in more than five weeks. Those yields rose to a session
high of 2.370 percent on Monday.
    Treasury Secretary Steven Mnuchin said on Sunday Trump would
use a major policy speech to a joint session of Congress to
preview some elements of his sweeping plans to cut taxes for the
middle class, simplify the tax system and make U.S. companies
more globally competitive, with lower rates and changes to
encourage U.S. manufacturing.
    Trump said on Monday he is seeking a "historic increase" in
military spending to be funded by cuts elsewhere in government
and that he would talk about his plans for infrastructure
spending on Tuesday.
    In addition, Dallas Fed President Robert Kaplan said Monday
that the U.S. central bank might need to raise interest rates in
the near future to avoid falling behind the curve on inflation. 
    “What the market reacted to was a combination of (Kaplan’s
comments) with the fact that we might be getting signs that
legislation may be sooner rather than later on things like tax
reform and infrastructure, and that’s all very growth-positive,"
said Priya Misra, head of global rates strategy at TD Securities
in New York.
    Prices on federal funds futures for March delivery fell on
Monday on record volume. They implied traders saw a 35 percent
chance the Fed will raise rates at its March 14-15 meeting, up
from 27 percent on Friday, according to CME Group's FedWatch
program.
    Benchmark 10-year notes were last down 13/32 in
price to yield 2.363 percent, from a yield of 2.317 percent late
Friday.
    "When the big trade for 2017 is supposed to be reflation and
higher growth, lower taxes and bigger infrastructure spending, 
people are loath to miss it, so you’re starting to see some
weakness in the market in anticipation of that possibility,"
said John Briggs, head of strategy for the Americas at NatWest
Markets.

      February 27 Monday 3:55PM New York / 2055 GMT
                               Price                  
 US T BONDS MAR7               152-23/32    -0-16/32  
 10YR TNotes MAR7              125-36/256   -0-120/2  
                                            56        
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.5025       0.5101    -0.005
 Six-month bills               0.6725       0.6841    0.031
 Two-year note                 99-216/256   1.2043    0.059
 Three-year note               99-196/256   1.456     0.065
 Five-year note                100-10/256   1.8668    0.064
 Seven-year note               99-164/256   2.1806    0.061
 10-year note                  98-252/256   2.365     0.048
 30-year bond                  100-88/256   2.9825    0.030
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        35.25        -2.50    
 spread                                               
 U.S. 3-year dollar swap        28.50        -2.25    
 spread                                               
 U.S. 5-year dollar swap        12.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -2.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -38.25         0.25    
 spread                                               
 
 (Reporting by Sam Forgione; Additional reporting by Richard
Leong; Editing by Nick Zieminski and James Dalgleish)
  

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