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TREASURIES-U.S. bond yields flat as stock drop offsets PPI, auction
May 11, 2017 / 7:33 PM / 7 months ago

TREASURIES-U.S. bond yields flat as stock drop offsets PPI, auction

    * Soggy 30-year bond auction marks weak May U.S. refunding
    * Investors turn defensive ahead of CPI, retail sales data
    * U.S. yields touch highest levels since at least late March
    * U.S. producer prices post biggest annual gain in 5 years

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, May 11 (Reuters) - U.S. Treasury yields were
little changed for a second day on Thursday after hitting their
highest levels since March as losses in Wall Street stocks
offset an April jump in producer prices and a poorly received
30-year bond auction. 
    The drop in U.S. share prices reversed an earlier rise in 
Treasury yields stemming from news of a robust April rise in the
producer price index. That report stoked the view that inflation
is nearing the Federal Reserve's 2-percent goal and of a
possible interest rate increase in June.
    "The weakness in equities is keeping Treasury yields under
wraps," said Gennadiy Goldberg, interest rates strategist at TD
Securities in New York.
    With the PPI posting its biggest annual increase in five
years, the April readings on Consumer Price Index and retail
sales for release at 8:30 a.m. (1230 GMT) on Friday may
strengthen expectations for a June rate hike, if they reinforce
the notion of a pickup in economic growth in the second quarter.
    Moreover, the $62 billion supply from the U.S. quarterly
refunding and a hefty issuance corporate bonds, together with
centrist Emmanuel Macron's presidential win in France last
Sunday, have underpinned the rise in Treasury yields this week.

    Despite weak demand at the Treasuries auctions, modest
buying emerged.
    "Once you get through the refunding, it is not unusual to
find a bid," said John Canavan, market strategist at Stone &
McCarthy Research Associates in Princeton, New Jersey.
    In tight, choppy trading, benchmark 10-year Treasury yield
 was down 1 basis point at 2.408 percent, retreating
from 2.423 percent, a near six-week peak reached following the
April PPI report.
    The two-year Treasury yield, which is sensitive
to traders' view on Fed policy, hit a near eight-week peak at
1.367 percent before subsiding to 1.347 percent, down 1 basis
point on the day.
    The three major U.S. stock indexes
sagged before paring some losses in late trading.
    The 2.5 percent annual jump in the PPI last month was the
latest evidence domestic inflation is accelerating with a
tightening domestic labor market and global economic backdrop.
This supported market expectations the Fed would hike rates by
quarter point to 1.00-1.25 percent at its June 13-14 policy
meeting, analysts said.
    Interest rate futures implied traders saw an 85 percent
chance of a rate increase next month compared with
83 percent on Wednesday, CME Group's FedWatch tool showed.
May 11 Thursday 2:59PM New York / 1859 GMT
 US T BONDS JUN7               150-20/32    0-3/32    
 10YR TNotes JUN7              124-240/256  0-32/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.87         0.884     -0.015
 Six-month bills               1.0175       1.0369    0.000
 Two-year note                 99-208/256   1.3468    -0.008
 Three-year note               99-214/256   1.5562    -0.011
 Five-year note                99-192/256   1.928     -0.010
 Seven-year note               98-168/256   2.2091    -0.015
 10-year note                  99-200/256   2.3997    -0.010
 30-year bond                  99-68/256    3.0375    -0.005
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        24.75         0.25    
 U.S. 3-year dollar swap        20.25         0.75    
 U.S. 5-year dollar swap         6.00         0.50    
 U.S. 10-year dollar swap       -8.25         1.00    
 U.S. 30-year dollar swap      -46.50         0.25    

 (Reporting by Richard Leong; Editing by James Dalgleish)

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