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TREASURIES-Yields fall as Trump allegations lowers stimulus hopes
May 17, 2017 / 7:23 PM / 6 months ago

TREASURIES-Yields fall as Trump allegations lowers stimulus hopes

 (Adds quote, updates prices)
    * Political concerns raise safety buying of bonds
    * Trump seen less likely to pass fiscal, tax policies
    * Two, 10-yr yield curve flattest since November

    By Karen Brettell
    NEW YORK, May 17 (Reuters) - U.S. Treasury yields were on
track on Wednesday for their biggest daily percent drop since
July as concerns grew that allegations against U.S. President
Donald Trump would delay his efforts to cut taxes and increase
infrastructure spending.
    A small but growing number of Trump's fellow Republicans
called on Wednesday for an independent probe of possible
collusion between his 2016 campaign and Russia, and one even
mentioned impeachment, spurred by a memo from the fired FBI
chief saying Trump tried to impede the agency's investigation.
            
    It came after allegations that Trump had sought to end the
FBI's investigation into ties between Trump's first national
security adviser, Michael Flynn, and Russia. 
    The events are seen as distracting lawmakers from passing
legislation that investors had hoped would help boost economic
growth.
    "The more focus there is on the headlines, the less there is
on the stuff that the market really cares about, which is fiscal
stimulus, tax reform, regulatory reform, any of those issues,"
said Aaron Kohli, an interest rate strategist at BMO Capital
Markets in New York.
    Benchmark 10-year notes             gained a full point in
price to yield 2.22 percent, the lowest level since April 21,
and down from 2.33 percent late on Tuesday. 
    The yield curve between two-year notes and 10-year notes
               flattened to the lowest level since Nov. 3 as
investors reached for longer duration bonds. 
    Longer-dated notes are viewed as having more potential
upside than two-year notes, as the shorter-dated debt is highly
sensitive to interest rate changes and the Federal Reserve is
expected to hike rates next month.
    "It’s a pure duration reach," said Tom di Galoma, a managing
director at Seaport Global in New York. "People have decided
that there is only so much the two-year can perform because the
Fed is going to go in June."
    Bonds have also been boosted in recent days by weakening
U.S. economic data, which has raised new doubts over whether the
Fed is likely to raise rates an additional two times this year.
    Futures traders are pricing in a 65 percent chance of a June
hike, down from 88 percent a week ago, according to CME Group's
FedWatch Tool.
    Traders see only a 40 percent chance of the Fed raising
rates two or more times by the year end, even though Fed
officials have said two more rate hikes are likely in 2017. 
    

 (Editing by Paul Simao and Cynthia Osterman)
  
 
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