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TREASURIES-Yields inch higher after strong U.S., global data
January 3, 2017 / 8:38 PM / 10 months ago

TREASURIES-Yields inch higher after strong U.S., global data

* Strong U.S. economic data boosts Treasury yields

* Positive data from China, Europe helps global yields

* ‘Rate-locking’ activities also weigh on Treasury prices

* U.S. 30-year yields fall to four-week low (Updates prices, adds comment)

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 3 (Reuters) - U.S. Treasury debt yields were mostly higher on Tuesday after three days of losses, supported by positive U.S. data and upbeat economic reports from China and Europe

Bond prices, which move inversely to yields, trimmed losses however, as U.S. stocks and oil pared gains. U.S. 30-year bond yields, which are particularly sensitive to oil-driven inflation expectations, fell to four-week lows as a result.

“Treasuries have benefited from stocks and oil coming off their early highs,” said Lou Brien, markets strategist at DRW Trading in Chicago.

Reports that Libya will further increase crude production triggered the decline in oil prices, with a stronger dollar also weighing. A strong dollar makes commodities such as oil, which are priced in the greenback, more expensive to holders of other currencies.

The fall in oil prices triggered some selling in stocks, pulling them from earlier highs.

Treasury prices were still mostly lower overall following strong U.S. manufacturing and construction spending data.

Chinese numbers showing the economy’s fastest factory output growth in six years along with firmer German and French inflation figures also provided a broad boost to global yields.

“Global yields in general are higher as data overall has been relatively positive,” said Gennadiy Goldberg, interest rates strategist, at TD Securities in New York.

He also said Treasury prices fell partly due to “rate-locking” activities in which Wall Street dealers lock in borrowing costs for corporate bonds they are underwriting. January is historically a month with a heavy corporate issuance calendar, as investors look to put money to work and issuers launch their funding plans for the year.

According to TD, January has accounted for about 11 percent of issuance for the year, with March, September and November as the other heavy supply months.

As part of underwriting, a dealer sells Treasuries as a hedge to lock in the borrowing cost on the bond issue before the deal is completed. Once the bond is sold, the dealer buys back Treasuries to exit the rate lock.

Typically, market moves stemming from supply hedging are temporary and not indicative of market sentiment.

In late trading, the U.S. 10-year note was down 4/32 in price to yield 2.446 percent, compared with 2.432 percent late on Friday.

U.S. 30-year bond prices were up 4/32, yielding 3.044 percent, down from Friday’s 3.051 percent.

U.S. two-year note prices were down 1/32, with a yield of 1.218 percent, compared with 1.198 percent on Friday. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama and Meredith Mazzilli)

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