January 2, 2018 / 4:11 PM / 18 days ago

U.S. yields start higher in 2018 in step with Europe

NEW YORK (Reuters) - U.S. Treasury yields rose on Tuesday in line with European government yields after comments from a European Central Bank official who said the central bank’s massive bond purchase program might not continue later this year.

Benoit Coeure, the ECB board member who oversees its market operations, told Caixin Global, a Chinese financial magazine that he sees “a reasonable chance” the 2.55 trillion euros stimulus program will not be extended again when it expires in September.

“European bonds are weaker because of comments from Coeure,” said Karl Haeling, vice president at Landesbank Baden-Wurttemberg in New York. “You have a stronger stock market.”

Investors piled back into stocks from bonds at the start of 2018 after Wall Street scored its strongest performance in four years in 2017, buttressed by steady economic growth, solid corporate earnings and the most dramatic overhaul of the federal tax code in 30 years.

U.S. government bonds .BCUSATSY produced a 2.3 percent annual return last year, as low inflation offset three rate increases from the Federal Reserve, according to an index compiled by Bloomberg and Barclays. This compared with a 19.5 percent yearly gain for the S&P 500 .SPX.

At 10:50 a.m. (1550 GMT), the benchmark 10-year Treasury yield US10YT=RR was up 4 basis points at 2.452 percent following a 2 basis-point dip last year.

Its German counterpart rose nearly 3 basis point to 0.454 percent after touching a two-month peak earlier Tuesday.

    In the bond market selloff, the margin between shorter and longer-dated Treasury yields grew after last week’s flattening. The five-to-30-year part of the yield curve US5US30=TWEB steepened to almost 55 basis points from 51 basis points earlier on Tuesday which was its flattest level in a decade.

    On the supply front, the Treasury Department will sell $160 billion worth of bills on Tuesday: $50 billion in one-month bills US1MTWI=TWEB, $48 billion in three-month bills US3MTWI=TWEB, $42 billion in six-month bills US6MTWI=TWEB and $20 billion in one-year bills US1YTWI=TWEB.

    U.S. financial markets reopened on Tuesday after the New Year’s Day holiday on Monday.

    Reporting by Richard Leong; Editing by Susan Thomas

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