March 16, 2017 / 5:39 PM / 8 months ago

TREASURIES-Yields rise as traders reverse reaction to Fed decision

    * Yields rise from more than one-week lows
    * 10-year yields at 2.531 pct after touching 2.486 pct
overnight
    * Response to Fed rate hike projections seen as overdone
    * Dutch election outcome reduces demand for safe-haven debt

    By Sam Forgione
    NEW YORK, March 16 (Reuters) - U.S. Treasury yields rose on
Thursday from more than one-week lows on the view that they had
fallen too sharply in the prior session after the Federal
Reserve maintained its outlook for only a gradual pace of
interest rate increases this year. 
    The Fed, which as expected raised rates for the second time
in three months on Wednesday, said in its policy statement that
further rate increases would be "gradual." Officials stuck to
their outlook for two more rate hikes this year and three more
in 2018.
    Wall Street's top banks also see just two additional rate
rises this year from the U.S. central bank, and most expect at
least three more in 2018, a Reuters poll showed on Wednesday.

    While disappointment with the Fed's outlook pushed yields
lower in a knee-jerk reaction on Wednesday, that sentiment
dissipated on Thursday. 
    "Today is kind of a rebound back to reality," said bond
strategist Stan Shipley of Evercore ISI in New York. 
    Shipley said the number of future hikes that the Fed expects
could still put upward pressure on Treasury yields as inflation
also rises. 
    "With accelerated inflation and Fed tightening, 10-year
Treasury yields are going to go through that 2.60 (percent)
ceiling sometime in the next month or so," he said. 
    Benchmark 10-year Treasury notes were last down
7/32 in price, with yields rising to 2.531 percent from 2.504
percent late on Wednesday. Benchmark yields extended Wednesday's
decline in overnight trading to hit a 10-day low of 2.486
percent. 
    U.S. 30-year bonds fell 25/32 in price, and
yields rose to 3.143 percent from 3.102 percent. 
    Two-year notes, which are considered most
vulnerable to Fed policy, were down slightly in price, while
yields increased to 1.328 percent from 1.316 percent. 
    Two-year yields, which fell more than six basis points on
Wednesday to mark their biggest single-day drop since June,
extended their decline in overnight trading to a 10-day low of
1.299 percent before moving higher. 
    Yields also increased after Dutch center-right Prime
Minister Mark Rutte fought off a challenge by anti-immigration,
anti-European Union rival Geert Wilders to score an election win
seen as a victory against populist nationalism.
    "The fact that Geert Wilders didn’t win the Dutch election
did remove some risk from the markets," said interest rate
strategist Gennadiy Goldberg of TD Securities in New York. 
    
  March 16 Thursday 10:41AM New York / 1441 GMT
                               Price                  
 US T BONDS JUN7               147-21/32    -0-20/32  
 10YR TNotes JUN7              123-148/256  -0-40/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.7325       0.744     0.005
 Six-month bills               0.8625       0.8783    -0.011
 Two-year note                 99-156/256   1.3281    0.012
 Three-year note               100-12/256   1.6089    0.011
 Five-year note                99-68/256    2.0315    0.016
 Seven-year note               98-178/256   2.3292    0.023
 10-year note                  97-148/256   2.5275    0.023
 30-year bond                  97-64/256    3.1424    0.040
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        32.50        -2.00    
 spread                                               
 U.S. 3-year dollar swap        24.75        -1.50    
 spread                                               
 U.S. 5-year dollar swap         9.50        -1.25    
 spread                                               
 U.S. 10-year dollar swap       -4.25        -1.25    
 spread                                               
 U.S. 30-year dollar swap      -39.75        -0.75    
 spread                                               
    
    
    
    

 (Reporting by Sam Forgione)
  

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