December 31, 2019 / 2:54 PM / 2 months ago

TREASURIES-Bonds on track for best year since 2014

    By Karen Brettell
    NEW YORK, Dec 31 (Reuters) - Longer-dated U.S. Treasuries
are on track to post their best return since 2014 on Tuesday,
after concerns about the slowing U.S. economy prompted the
Federal Reserve to cut interest rates three times this year.
    Slowing growth that was worsened by the trade war between
the United States and China, tepid inflation and concerns that
the U.S. central bank went too far in raising rates last year
prompted a radical shift in 2019 that at one point sent
benchmark yields to their lowest levels since 2016.
    The closely watched yield curve between two-year and 10-year
notes also inverted in August, a signal that a
recession is likely in the next one to two years. It has since
steepened out to its highest levels since October 2018.
    Longer-dated debt gained this year on concerns that low
inflation and weak growth will persist or worsen. Demand for
yields, with many bonds in Europe and Japan trading in negative
territory, added to their outperformance.
    Thirty-year bonds are on track for a 17.15% return this year
, according to Bank of America Merrill Lynch.  
Benchmark 10-year notes are heading toward a 9.03%
return for the year. 
    In 2014, 30-year bonds returned 29.43% and 10-year notes
returned 10.72%.
    Optimism this month that the growth picture in the United
States is improving, and an increase in risk appetite after the
United States and China agreed to the first phase of a trade
deal, however, has eaten into the year’s returns.
    Thirty-year bonds are on track for a 2.83% loss
this month and 10-year notes are heading toward a
0.91% decrease.
    Overnight funding markets were stable on Tuesday, indicating
that the Federal Reserve has offset any potential year-end
funding squeeze.
      December 31 Tuesday 9:36AM New York / 1436 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.525        1.5564    0.000
 Six-month bills               1.5575       1.596     0.000
 Two-year note                 100-18/256   1.589     0.016
 Three-year note               100-6/256    1.6167    0.022
 Five-year note                100-62/256   1.6992    0.018
 Seven-year note               99-116/256   1.8337    0.026
 10-year note                  98-124/256   1.9192    0.024
 30-year bond                  99-252/256   2.3757    0.032
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        10.75         0.25    
 U.S. 3-year dollar swap         6.75         0.00    
 U.S. 5-year dollar swap         2.75         0.50    
 U.S. 10-year dollar swap       -3.25         0.25    
 U.S. 30-year dollar swap      -29.75         0.25    

 (Reporting by Karen Brettell;
Editing by Nick Zieminski)
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