January 18, 2018 / 3:42 PM / 6 months ago

TREASURIES-Benchmark yields at 10-month high on strong China data

    * U.S. 10-year yields hit highest since March
    * 10-year inflation breakeven rate highest since March
    * Two-year yields highest since September 2008

    By Kate Duguid
    NEW YORK, Jan 18 - Yields on U.S. 10-year notes reached a
10-month high on Thursday after China reported fourth-quarter
growth that accelerated for the first time in seven years. 
    China's gross domestic product grew 6.8 percent in the
October to December period from a year earlier. An export
recovery helped the country post an annual acceleration in
growth, defying concerns that intensifying curbs on industry and
credit would hurt expansion.
    After a week abutting 2.60 percent, the 10-year U.S.
Treasury yield passed that mark to hit its highest
level since March 2017. The strong data out of China also
pressured European bonds, with Germany's benchmark 10-year note
yield rising to 0.595 percent, the highest since
July.
    Also pushing yields higher was Apple's announcement
that it would open a new campus as part of a $30 billion U.S.
investment plan and will make a $38 billion one-time tax payment
on its overseas cash.
    Apple has parked much of its overseas profit in debt,
holding about $52.5 billion in Treasury bonds and $150.7 in
corporate securities. The concern is not simply that Apple would
sell Treasuries to pay these bills, but that a number of
multinationals could do the same. 
    "It’s not like it’s a large chunk of cash coming back," said
Subadra Rajappa, head of U.S. rates strategy at Societe Generale
in New York. "But the question is, are other corporations going
to do the same - is Apple just the first?"
    Also on Thursday, the U.S. bond market's gauge of inflation
expectations reached their highest levels since March in advance
of a $13 billion auction of 10-year Treasury Inflation-Protected
Securities (TIPS) at 1 p.m. (1800 GMT).
    At 10:00 a.m. (1500 GMT), the 10-year inflation breakeven
rate, or the yield gap between 10-year TIPS and
regular 10-year Treasury notes, was 2.07 percent, up 1.5 basis
points from late Wednesday, Tradeweb and Reuters data showed.

    "The market seems to be positioned long in breakevens in
anticipation of a pickup in inflation," Rajappa said. 
    At 10:00 a.m.(1500 GMT), 10-year Treasury yields were 2.603
percent, above Wednesday's close at 2.578 percent. Two-year
yields were 2.051 percent, after hitting 2.060
percent earlier in the day, the highest since September 2008.
    
    January 18 Thursday 10:09AM New York / 1509 GMT
                               Price                  
 US T BONDS MAR8               149-24/32    -0-18/32  
 10YR TNotes MAR8              122-128/256  -0-40/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.4275       1.4525    0.007
 Six-month bills               1.6075       1.6431    0.013
 Two-year note                 99-170/256   2.0516    0.009
 Three-year note               99-130/256   2.1709    0.008
 Five-year note                98-174/256   2.4096    0.016
 Seven-year note               98-48/256    2.5361    0.020
 10-year note                  96-248/256   2.6016    0.024
 30-year bond                  97-140/256   2.8729    0.025
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.25         0.25    
 spread                                               
 U.S. 3-year dollar swap        19.25         0.75    
 spread                                               
 U.S. 5-year dollar swap         5.50         0.50    
 spread                                               
 U.S. 10-year dollar swap        0.50         0.00    
 spread                                               
 U.S. 30-year dollar swap      -17.00        -0.25    
 spread                                               
 








 (Reporting by Kate Duguid; Editing by Susan Thomas)
  
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