April 23, 2018 / 7:14 PM / a month ago

TREASURIES-Supply, inflation worry lift U.S. 10-year yield to 4-year highs

    * U.S. 10-year yield flirts with 3 percent threshold
    * U.S. to sell $96 billion in coupon-bearing debt
    * Long-term inflation gauges rise to highest since 2014
    * Speculative net 10-year T-note shorts near 13-month high

 (Updates market action, adds quote, graphics)
    By Richard Leong
    NEW YORK, April 23 (Reuters) - U.S. bond prices fell on
Monday, with the 10-year yield hitting its highest in over four
years amid worries about the growing supply of government debt
and accelerating inflation as oil and commodity prices climb.   
    Last week, speculators reloaded their bets that 10-year
Treasury prices will fall to near their highest levels in about
13 months, Commodity Futures Trading Commission's commitments of
traders data released on Friday showed.      
    The U.S. Treasury Department will sell a combined $96
billion in coupon-bearing securities this week, starting with
$32 billion in two-year notes on Tuesday.
    The yield on 10-year Treasury notes was 2.971
percent, up 2 basis points from late on Friday. It touched 2.998
percent earlier Monday, which was the highest since January
2014, Reuters data showed.
    "There are supply concerns. The auction sizes are getting
bigger," said Larry Milstein, head of agency and government
trading at R.W. Pressprich & Co in New York.
    The Treasury has ramped up its borrowing to fund its
operation following last year's massive tax overhaul and a
two-year budget agreement reached in February.
    An expected jump in Treasuries supply is expected to lift
long-term borrowing costs, not only for the government but also
for consumers.
    The two-year yield was 2.474 percent, nearly 2
basis points higher on the day after hitting 2.478 percent
earlier Monday, which was last seen in September 2008.
    A further sell-off in Treasuries steepened the yield curve
from its flattest levels in over a decade set last week.
    The flattening move partly reflected some anxiety among
traders on whether the U.S. economic expansion is running out of
steam as expectations of more increases in short-term interest
rates by the Federal Reserve might slow business and consumer
spending and investment.
    Some fund managers expect the curve flattening trend to
resume even if yields rise further.
    "The reversal is pretty minor so far. The (flattening) theme
is still intact, but that doesn't mean long-end yields can't go
up," said Gene Tannuzzo, senior portfolio manager at Columbia
Threadneedle Investments in Minneapolis.
    Meanwhile, some market gauges of U.S. long-term inflation
expectations hit their highest level in at least 3-1/2 years on
Monday, Reuters data showed. 
    The 10-year inflation breakeven rate, or the yield gap
between 10-year Treasury Inflation Protected Securities and
regular 10-year Treasuries, was 2.19 percent, touching its
highest level since August 2014.

    Last week, global oil prices climbed to their
highest levels since November 2014 on supply and geopolitical
worries, boosting inflation expectations around the world,
analysts said. On Monday, U.S. crude futures settled up
24 cents at $68.64 a barrel.
    The Federal Reserve's Beige Book of regional economic
conditions, released on Wednesday, showed domestic prices grew
across the United States in March through early April.

April 23 Monday 3:05PM / 1905
                               Price                   
 US T BONDS JUN8               143          -0-3/32    
 10YR TNotes JUN8              119-88/256   -0-52/256  
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             1.7925       1.8252     0.018
 Six-month bills               1.9675       2.0143     0.005
 Two-year note                 99-148/256   2.4743     0.017
 Three-year note               99-68/256    2.6331     0.019
 Five-year note                98-138/256   2.819      0.028
 Seven-year note               98-20/256    2.9331     0.028
 10-year note                  98-32/256    2.9714     0.020
 30-year bond                  97-68/256    3.1418     0.000
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        27.00        -1.25     
 spread                                                
 U.S. 3-year dollar swap        21.25        -0.75     
 spread                                                
 U.S. 5-year dollar swap        10.50        -1.00     
 spread                                                
 U.S. 10-year dollar swap        2.50        -0.75     
 spread                                                
 U.S. 30-year dollar swap      -13.00        -0.50     
 spread                                                
 

    
 (Additional reporting by Abhinav Ramnarayan in LONDON; editing
by Sujata Rao, Bernadette Baum and Jonathan Oatis)
  
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