February 16, 2018 / 8:53 PM / a month ago

TREASURIES-Prices gain after selloff, track foreign bonds

 (New throughout, updates prices, market activity, comments and
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 16 (Reuters) - U.S. Treasury prices edged
higher on Friday, as investors bought back bonds after a selloff
earlier in the week spurred by robust U.S. inflation data that
fed the view that the Federal Reserve may hike interest rates
more aggressively than expected.
    U.S. benchmark 10-year yields, which move inversely to
prices, had jumped to four-year highs this week, while yields on
2-year notes touched more than nine-year peaks.
    Yields briefly ticked higher after data showed
stronger-than-expected housing starts and import prices,
suggesting inflation was on the rise and the economy on a stable
growth path.
    But there was not enough support for the price move.
    "The bond market was oversold from Wednesday's CPI-related
selling and that may be nearing an end soon," said Tom di
Galoma, managing director at Seaport Global in New York.
    Wednesday's data showed that the core consumer price index
grew 0.3 percent, the biggest increase since January 2017.
 That was followed by stronger-than-expected U.S. producer
prices data. Both reports led to a spike in yields.
    Analysts said the market has increasingly priced in four
rate hikes by the Fed this year.
    Treasury yields on Friday also tracked a decline overseas.
Yields were also down on German, UK and
Japanese government bonds.
    "Healthy and surprising bond purchases in Europe today
prevented Treasuries from selling off on a morning full of
better economic reports," said Jim Vogel, interest rates
strategist, at FTN Financial in Memphis, Tennessee.
    "Constant global selling this month was one reason for
woeful U.S. Treasury performance so domestic traders welcomed
the chance for a break."
    Analysts further attributed the drop in JGBS yields to news
Bank of Japan Governor Haruhito Kuroda had been re-appointed for
another term, while Masazumi Wakatabe, an advocate of aggressive
easing, was appointed BoJ deputy governor.
    Their appointments suggest there could a few more years of
monetary stimulus in Japan, analysts said.
    In late trading, U.S. benchmark 10-year Treasury note yields
fell to 2.873 percent, from Thursday's 2.893
    U.S. 30-year yields dropped to 3.130 percent,
from 3.145 percent late on Thursday.
    The yield curve also flattened on Friday, suggesting more
conviction for a near-term interest rate hike. The spread
between U.S. 2-year and 10-year notes declined to 65.9 basis
points, the tightest in two weeks.
    The curve steepened last week during the stock market
sell-off, as inflation fears escalated with the 2.9 percent rise
in wage gains for January. That prompted a sell-off on the long
end of the curve.
      February 16 Friday 3:35PM New York / 2035 GMT
 US T BONDS MAR8               144-11/32    0-11/32   
 10YR TNotes MAR8              120-156/256  0-40/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.58         1.608     0.010
 Six-month bills               1.7875       1.8284    0.007
 Two-year note                 99-162/256   2.1936    0.010
 Three-year note               99-156/256   2.3862    -0.013
 Five-year note                98-214/256   2.6274    -0.010
 Seven-year note               98-28/256    2.8013    -0.020
 10-year note                  98-240/256   2.8731    -0.020
 30-year bond                  97-136/256   3.1275    -0.017
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.50        -1.75    
 U.S. 3-year dollar swap        20.50         0.25    
 U.S. 5-year dollar swap         9.75         0.00    
 U.S. 10-year dollar swap        1.75         0.75    
 U.S. 30-year dollar swap      -15.50         1.00    
 (Editing by Bernadette Baum and David Gregorio)
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