April 1, 2019 / 7:42 PM / 5 months ago

TREASURIES-U.S. bond market takes worst beating in three months

    * U.S. manufacturing activity rebounds in March - ISM
    * China's factory growth resumes for first time in four
    * U.S. retail sales fall short of expectations in February
    * U.S. 3-month, 10-year yield curve steepest in 2 weeks

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, April 1 (Reuters) - The U.S. Treasury market
posted its biggest one-day sell-off in three months on Monday,
as encouraging data on manufacturing activity in the world's two
biggest economies spurred some investors to scale back their
safe-haven holdings of bonds.
    The bond market's wobbly start to the second quarter
followed a solid first quarter, driven by worries about a global
economic slowdown and the Federal Reserve signaling it would not
raise interest rates in 2019.
    "We are going from a bad situation to a less bad situation.
The (manufacturing data) had a impact for sure," said Ellis
Phifer, senior market strategist at Raymond James in Memphis,
    The Institute for Supply Management said its index on U.S.
domestic factory activity rose to 55.3 in March, higher than
what analysts polled by Reuters had expected.
    China's manufacturing sector unexpectedly returned to growth
for the first time in four months in March, data showed earlier
on Monday. The Caixin/Markit Manufacturing Purchasing Managers'
Index (PMI) expanded at the strongest pace in eight months,
rising to 50.8 from 49.9 in February.
    In heavy volume, the yield on benchmark 10-year Treasury
notes rose nearly 8 basis points for its biggest
single-day jump since Jan. 4. It almost reached 2.50 percent to
its highest levels in more than a week before finishing the day
at 2.494 percent.
    Last week, 10-year yields fell to 2.340 percent, which was
their lowest levels in 15 months. 
    "The move was overdone a bit," said Justin Lederer, Treasury
strategist at Cantor Fitzgerald in New York.
    On March 22, 10-year yields fell below three-month bill
rates for the first time since 2007.
    The inversion between three-month rates and 10-year yields
fed speculation about a U.S. recession. This market phenomenon
preceded each recession in the past 50 years.
    With 10-year yields back above three-month rates since
Friday, analysts said the chances of a looming recession have
faded a bit as data still suggest the economic expansion will
likely persist in 2019.
    Still the surprise drop on U.S. retail sales in February
reinforced the view of a deceleration in economic activity in
the first quarter. 
    Lingering economic worries, analysts say, will limit the
rise in bond yields following a solid first-quarter when
Treasuries generated 2.1 percent total return based on data from
Barclays and Bloomberg.
    Treasuries trailed a blockbuster quarter for Wall Street
where the S&P 500 jumped 13.1 percent, which was the
strongest quarterly gain since third quarter of 2009.
April 1 Monday 3:26PM New York / 1926 GMT
 US T BONDS JUN9               148-9/32     -44/32    
 10YR TNotes JUN9              123-164/256  -19/32    
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.34         2.3858    -0.014
 Six-month bills               2.375        2.4431    0.002
 Two-year note                 99-220/256   2.3225    0.049
 Three-year note               100-68/256   2.2812    0.057
 Five-year note                99-36/256    2.3082    0.065
 Seven-year note               99-16/256    2.3964    0.075
 10-year note                  101-40/256   2.492     0.078
 30-year bond                  102-64/256   2.887     0.067
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       16.70        2.40      
 30-year vs 5-year yield       57.80        -0.10     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        11.50         0.00    
 U.S. 3-year dollar swap         8.50        -0.50    
 U.S. 5-year dollar swap         4.75        -0.25    
 U.S. 10-year dollar swap       -0.50        -0.50    
 U.S. 30-year dollar swap      -23.50         0.25    

 (Reporting by Richard Leong; Editing by Andrea Ricci)
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