January 24, 2018 / 4:17 PM / 4 months ago

TREASURIES-Prices tumble after U.S. Treasury's Mnuchin endorses weak dollar

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 24 (Reuters) - U.S. Treasury debt prices
slumped on Wednesday, after Treasury Secretary Steven Mnuchin
backed a weaker dollar to help boost America's global trade,
breaking from the traditional strong currency policy of past
administrations.
    U.S. 30-year bond yields, which move inversely to prices,
rose to their highest in more than three months, while those on
10-year and 2-year notes touched session highs.
    On the eve of U.S. President Donald Trump's speech at the
World Economic Forum in Davos, Switzerland, Mnuchin said a
weakening of the dollar benefits the United States.
    The dollar, already under pressure the last few months,
tumbled on his comments. Central banks aside from the Federal
Reserve, such as the European Central Bank, have moved to
normalize their monetary policies, boosting their currencies at
the expense of the dollar.
    Treasuries sold off on Wednesday in tandem with the dollar
following Mnuchin's remarks.  
    "If that intentional policy from the administration on the
dollar lasts, it might put off some overseas buyers that may be
interested in buying Treasuries," said Jim Vogel, interest rate
strategist at FTN Financial in Memphis, Tennessee.
    "It's nice to buy Treasuries when you think the dollar is
near the bottom," he added.
    To be sure, analysts said Mnuchin was not the only reason
Treasuries sold off. 
    Vogel said investors reversed the rally seen in Treasuries
on Tuesday after the Bank of Japan kept interest rate targets
unchanged and its top official, Governor Haruhiko Kuroda,
quashed speculation of a move away from easy monetary policy.
    "The impact from the BoJ sort of eroded. We never thought it
would last 12 hours, but it did," said Vogel.
    In late morning trading, U.S. 10-year Treasury yields
 rose to 2.655 percent, from 2.622 percent late on
Tuesday.
    U.S. 30-year bond yields, meanwhile, hit a 3-1/2-month peak
of 2.956 percent and were last at 2.942 percent, up 
from 2.902 percent on Tuesday.
    U.S. 2-year note yields were also higher, trading at 2.080
percent, from 2.059 on Tuesday.
    Some dealers said the market sold Treasuries ahead of the
$34 billion 5-year note auction later on Wednesday. Traders tend
to sell the note to bump up the yield so can they buy it at a
lower price at the auction in a practice known as concession.
    Investors were also awaiting the European Central Bank's
policy decision on Thursday and Trump's speech on Friday in
Davos.
    Reuters reported last week that the ECB was unlikely to
ditch their bond-buying pledge at this week's meeting, and would
more likely alter guidance at the March meeting which includes
updated economic forecasts. 
    
      January 24 Wednesday 11:03AM New York / 1603 GMT
                               Price                  
 US T BONDS MAR8               148-8/32     -0-31/32  
 10YR TNotes MAR8              122-40/256   -0-68/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.415        1.4398    -0.007
 Six-month bills               1.6          1.6355    -0.003
 Two-year note                 99-214/256   2.0842    0.025
 Three-year note               99-108/256   2.2019    0.025
 Five-year note                98-134/256   2.4445    0.026
 Seven-year note               97-228/256   2.5842    0.035
 10-year note                  96-120/256   2.6614    0.039
 30-year bond                  96-12/256    2.9502    0.048
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.00        -1.75    
 spread                                               
 U.S. 3-year dollar swap        18.50         0.25    
 spread                                               
 U.S. 5-year dollar swap         6.75         0.25    
 spread                                               
 U.S. 10-year dollar swap        2.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -15.00        -1.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith
Mazzilli)
  
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