September 19, 2018 / 2:34 PM / 8 months ago

TREASURIES-Solid housing starts boost long-dated yields to four-month highs

    By Kate Duguid
    NEW YORK, Sept 19 (Reuters) - U.S. 10-year Treasury note and
30-year bond yields hit fresh four-month highs on Wednesday
morning after a report that U.S. homebuilding increased more
than expected in August.
    Housing starts rose 9.2 percent last month, the Commerce
Department reported, a positive sign for the housing market,
which has underperformed the broader economy amid rising
interest rates for home loans.
    The strong data pushed 10-year yields to a high
of 3.085 percent, and 30-year yields to a high of
3.235 percent, extending a three-day rise in yields.
    Global equities have rallied, delivering a blow to
safe-haven assets such as Treasuries, as investors have bet that
the escalating trade fight between the United States and China
would inflict less damage than expected.  
    "The data continues to come out better than expected.
There's a possibility that we're going to continue to see a
strong equity market and that will continue to push Treasury
prices down," said Tom di Galoma, managing director at Seaport
Global Holdings.
    On Monday, Tuesday and Wednesday, the 10-year and 30-year
yields climbed to fresh four-month peaks. The annual highs for
both maturities were hit on May 18: 3.128 percent for the
10-year, and 3.264 percent for the 30-year.   
    Some analysts believe those highs are the market's next
technical threshold, and that yields will continue to rise until
they are reached. 
    "The high yield on 10-year notes was 3.128 percent for 2018
and the market is testing that technical level," said di Galoma.
    U.S. President Donald Trump on Monday announced the
imposition of 10 percent tariffs on about $200 billion worth of
Chinese imports, but sparing consumer products such as smart
watches, bicycle helmets and baby car seats.
    On Tuesday, China hit back at the United States, announcing
tariffs on about $60 billion worth of U.S. goods, but reducing
the volume of tariffs that it will collect on the products.

    The three-day rally in longer-dated maturities steepened the
yield curve, with the spread between 2-year and 10-year yields
 hitting a high of 26.7 basis points, up from
Monday's open at 19.10 basis points. The spread between the 5-
and 30-year yields hit a high of 26.9 basis
points, up from Monday's open at 22.8 basis points. 
    September 19 Wednesday 10:20AM New York / 1420 GMT
 US T BONDS DEC8               140-6/32     -0-14/32  
 10YR TNotes DEC8              118-168/256  -0-36/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.14         2.1815    0.007
 Six-month bills               2.315        2.3749    0.018
 Two-year note                 99-168/256   2.8074    0.008
 Three-year note               99-154/256   2.8901    0.014
 Five-year note                99-20/256    2.9515    0.015
 Seven-year note               98-68/256    3.0286    0.021
 10-year note                  98-88/256    3.07      0.022
 30-year bond                  95-204/256   3.2199    0.025
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        16.00         0.00    
 U.S. 3-year dollar swap        14.25        -0.50    
 U.S. 5-year dollar swap        11.50         0.00    
 U.S. 10-year dollar swap        5.50         0.00    
 U.S. 30-year dollar swap       -8.00        -0.75    
 (Reporting by Kate Duguid; editing by Jonathan Oatis)
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